- The Graveyard Of Empires: The Top Investments As The World Order Collapses
The Graveyard Of Empires: The Top Investments As The World Order Collapses
Authored by Nick Giambruno via InternationalMan.com,
“You have the watches, but we have the time.”
The Taliban often referred to this old Afghan saying when discussing their fight against the Americans.
Ultimately, they were proven correct.
After almost two decades of conflict, an insurgent army from one of the world’s poorest nations inflicted a decisive military defeat on the US, the global superpower that upholds the unipolar world order.
The US government’s total failure in Afghanistan—the longest war in American history—signifies a crucial moment and turning point in world history.
The Soviet Union collapsed about two years after the Red Army was defeated and withdrew from Afghanistan.
As we approach the second anniversary of the American retreat, could a similar fate be in store for the US?
While nobody knows the future, there is an excellent chance that the colossal failure in Afghanistan could accelerate the unraveling of the geopolitical power of the US and the shift to a multipolar world order.
Afghanistan’s strategic position has always made it a coveted prize in the Eurasian landscape.
As shown in the image below, Afghanistan is situated in the center of Eurasia, at the crossroads of China, Iran, and Russia—the three primary challengers to the US-led world order.
This central location is why Afghanistan has enormous geopolitical importance and why the US desired a strategic military presence there.
Source: Ontheworldmap.com
The US military’s presence in Afghanistan was a strategic roadblock to Russia, China, and Iran’s goal of creating a powerful geopolitical group in Eurasia that could challenge the US-led world order.
However, with the Taliban forcing the US military out of Afghanistan, the door to a more coherent geopolitical alliance in Eurasia is now wide open.
In short, failure in Afghanistan is a geopolitical disaster for the US.
For at least the past decade, China, Russia, and Iran have been working on an impressive plan to connect Eurasia—even while the US military was in Afghanistan. This trend will likely speed up now that the US military is no longer physically in their way.
Here’s what they have been working on…
China, Russia, and Iran are constructing a vast network of land-based transportation infrastructure, making the US Navy’s control of the oceans less significant.
China’s New Silk Road project is central to this new system. It aims to bypass the US financial system and the US Navy’s control of sea routes. The project, planned to be operational by 2025, includes high-speed railways, highways, fiber optic cables, energy pipelines, seaports, and airports.
These Eurasian powers are also establishing alternative international organizations for financial, political, and security cooperation, separate from those central to the US-led world order, institutions like NATO, the World Bank, SWIFT, and the IMF.
Some notable examples include the Asian Infrastructure Investment Bank (AIIB), launched by China in 2014 and is an alternative to the IMF and World Bank.
The Eurasian Economic Union (EEU), a Russian-led trading bloc created in 2015, allows for the free movement of goods, services, capital, and people among its member countries.
Lastly, the Shanghai Cooperation Organization (SCO) focuses on military and security collaboration between its members.
If current trends continue, it will result in greater economic, political, and security collaboration among the three main Eurasian nations—China, Russia, and Iran—at the expense of US geopolitical interests.
This scenario is exactly what Zbigniew Brzezinski worried would make the US “geopolitically peripheral.” It spells the end of the unipolar world order.
In short, we are on the path to the emergence of an alliance of powerful Eurasian countries and a multipolar world order.
As the world order changes, I think there are two prominent investment outcomes we can bet on.
Outcome #1: The US Dollar Will Lose Its Privileged Position
The decline of America’s geopolitical influence is another enormous headwind for the US dollar.
Suppose the world thinks the US military is the ultimate backstop of the US dollar. What does it mean for the US dollar’s credibility when a ragtag group of insurgents from one of the poorest countries can defeat the military which backs it?
If the mighty US military couldn’t secure its partners in Afghanistan, how can it protect its other allies?
Taiwan, South Korea, Japan, Western European countries, and the Gulf Arab states are likely pondering this.
It wouldn’t be surprising to see them make security arrangements with US adversaries—such as China, Russia, and Iran—that exclude the Americans.
In fact, this has already happened with Saudi Arabia, a crucial player in the US-led world order. Saudi Arabia is the linchpin of the petrodollar system, which has underpinned the US dollar since Nixon removed its last links to gold in 1971.
In a matter of weeks, Saudi Arabia has:
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Restored relations with Iran.
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Restored relations with Syria and welcomed it back to Arab League.
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Supported multiple OPEC+ oil production cuts against American wishes.
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Announced an end to the war in Yemen.
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Agreed to sell oil in other currencies.
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Decided to join the Shanghai Cooperation Organization (SCO).
The US recently sent its CIA director to Riyadh to tell the Saudis the Americans feel “blindsided” amid these seismic shifts in Saudi foreign policy.
In short, a paradigm shift in Saudi policies signifies a paradigm shift in the US dollar because of the petrodollar system.
However, Saudi Arabia is not the only US ally hedging its geopolitical bets recently. France, India, Japan, Mexico, Brazil, and others are making moves to cozy up to the Eurasian geopolitical block.
The big question is, how long will the world continue to hold the paper liabilities of a bankrupt and declining government?
While the US dollar is the leading global currency, it was already on a path of inevitable debasement and eventual collapse—even before considering the compounding effects of a multipolar world order.
The only reason the US government has managed to avoid severe consequences from its monetary policies is the US dollar’s status as the world’s premiere reserve currency, thanks to Washington’s military and economic dominance that has prevailed since the end of World War II. However, as this dominance wanes, so will the dollar’s purchasing power.
The US government’s ability to hide the effects of its rampant money printing by offloading trillions of dollars to foreigners is nearing its end.
That’s terrible news for the US dollar.
Now, that doesn’t mean I’m excited about the Chinese fiat currency—or whatever new monetary concoction the Eurasian block comes up with. Ultimately it will be nothing more than the liability of a new grouping of corrupt politicians and bureaucrats.
Money is simply something useful for storing and exchanging value. That’s it.
People have used stones, glass beads, salt, cattle, seashells, gold, silver, and other commodities as money at different times.
Think of money as a claim on human time. It’s like stored life or energy.
Unfortunately, today most of humanity thoughtlessly accepts whatever worthless digital and paper scrips their governments give them as money.
However, money does not need to come from the government. That’s a total misnomer that the average person has been hoodwinked into believing.
Fake money comes from government. Real money emerges from the market.
Government currencies are terrible money because they are easy to produce with a potentially unlimited supply.
The free market wouldn’t choose government confetti as money without laws forcing their use.
Here’s another way to think of it.
Imagine if Tony Soprano forced his neighborhood to use pieces of paper with his signature as money and threatened violence against anyone who disobeyed. That’s what governments are doing with their currencies.
Here’s the bottom line with money. Hardness is the most important characteristic of a good money.
Hardness does not mean something that is necessarily tangible or physically hard, like metal. Instead, it means “hard to produce.” By contrast, “easy money” is easy to produce.
The best way to think of hardness is “resistance to debasement,” which helps make it a good store of value—an essential function of money.
Would you want to put your savings into something somebody else can create without effort or cost?
Of course, you wouldn’t.
It would be like storing your life savings in Chuck E. Cheese arcade tokens, airline frequent flyer miles, or pieces of paper with Tony Soprano’s signature. Unfortunately, putting your savings into government currencies isn’t that much different.
What is desirable in a good money is something that someone else cannot make easily.
In short, as the US dollar loses its privileged position, I expect an ocean of capital to flow into apolitical, free-market, hard-to-produce monetary alternatives like gold and Bitcoin.
That’s why I think the end of the unipolar world order will boost two major investment trends—the re-monetization of gold and The Bitcoin Supremacy—as the world seeks alternatives to the US dollar.
Outcome #2: Commodity Supply Disruption
The end of the unipolar world order means transitioning to a multipolar global trade regime—with serious implications for commodities.
As I see it, there will be two main geopolitical blocks.
First, there are the countries part of or allied with the West. I’m reluctant to call this block “the West” because the people who control it have values antithetical to Western Civilization.
A more fitting label would be NATO & Friends.
The other block consists of Russia, China, Iran, and other countries favorable to a multipolar world order.
Let’s call them the BRICS+, which stands for Brazil, Russia, India, China, South Africa, and other interested countries.
Algeria, Argentina, Bahrain, Bangladesh, Belarus, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Saudi Arabia, Sudan, Syria, Tunisia, Turkey, the UAE, Venezuela, Zimbabwe, and numerous others have expressed interest in membership of BRICS.
BRICS+ is not a perfect label, but it’s a decent representation of the countries favorable to the multipolar world order.
While there already is friction in free trade—sanctions, tariffs, export bans, nationalizations, embargoes, strategic competition, etc.—between NATO & Friends and BRICS+, I expect it to grow substantially as the multipolar world order emerges.
That will have serious consequences for commodities, which BRICS+ dominates.
Take Russia, for example.
Politicians and the media in the US often ridicule Russia as nothing more than “a gas station with nuclear weapons,” an inaccurate cartoonish depiction.
Here’s the reality…
Russia is the world’s largest exporter of natural gas, lumber, wheat, fertilizer, and palladium (a crucial car component).
It is the second-largest exporter of oil and aluminum and the third-largest exporter of nickel and coal.
Russia is a major producer and processor of uranium for nuclear power plants. Enriched uranium from Russia and its allies provides electricity to 20% of the homes in the US.
Aside from China, Russia produces more gold than any other country, accounting for more than 10% of global production.
These are just a handful of examples. There are many strategic commodities that Russia dominates.
In short, Russia is not just an oil and gas powerhouse but a commodity powerhouse.
As tensions between NATO & Friends and BRICS+ continue to rise, I expect it to disrupt commodity trade between the two further.
Supply disruptions mean higher prices. That’s an outcome I think we can bet on.
I expect countries in both geopolitical blocks will increasingly focus on securing critical commodities and ensuring access to stable supplies.
I think we can bet on geopolitical competition between the two blocks causing increased demand and unstable supplies.
That’s why obtaining exposure to strategic commodities as the world order changes could be a winning move.
Here’s the bottom line…
Unfortunately, most people have no idea what really happens when the world order changes, let alone how to prepare…
The coming crisis will be much worse, much longer, and very different than what we’ve seen since World War II.
Countless millions throughout history were wiped out financially—or worse—as the world order changed because they failed to see the correct Big Picture and take appropriate action.
Don’t be one of them.
That’s exactly why I just released an urgent new report with all the details, including what you must do to prepare.
It’s called, The Most Dangerous Economic Crisis in 100 Years… the Top 3 Strategies You Need Right Now.
Tyler Durden
Sat, 07/08/2023 – 22:55 -
- YouTube Censors Australian Politician's Maiden Speech To Parliament
YouTube Censors Australian Politician’s Maiden Speech To Parliament
Authored by Rebekah Barnett via The Brownstone Institute,
“30 minutes of truth bombs” is how one Twitter user described Liberal Democrat John Ruddick’s maiden speech to the New South Wales (NSW) Parliament, last Wednesday 28 June. “Indeed, Ruddick, who left the Liberal Party in 2021 after public disagreements over the Party’s handling of the pandemic response, said out loud in parliament what many Australians have been saying for some time now – at first privately, around dinner tables, but increasingly more publicly, over workplace water coolers or at the pub, as saying the obvious becomes more socially acceptable.
Nevertheless, what is socially acceptable offline is not necessarily acceptable on social media. YouTube swiftly removed Ruddick’s speech from its platform, just seven hours after it was uploaded. The NSW Liberal Democrats say this is the first time in Australian history that a politician’s maiden speech has been censored by the platform.
The interference of the social media giant in Australia’s political discourse is ironic given this line from Ruddick’s speech: “We libertarians are plotting to take over the world … so we can leave you all alone.”
A spokesperson for the Lib Dems says, “We initially posted the video on party founder Dr John Humphreys’ YouTube account. We then circulated that link on other social media – for example, this tweet from Dr John, which you can see now links to a takedown notice.”
YouTube claims that the video violated its ‘medical misinformation policy’, and implied that removing the video was necessary to ensure that YouTube remains a ‘safe place for all.’
Note the definition of ‘medical misinformation’ as information that, “contradicts local health authorities’ or the World Health Organization’s (WHO) medical information about COVID-19.”
Hear that? Galileo just rolled in his grave.
So what did Ruddick actually say about Covid that might have disturbed the information gatekeepers?
He said that the NSW government had enacted an “authoritarian Covid police state.”
He said that the NSW government had given in to “vaccine extremism,” telling the public, ‘we won’t let you out until you take multiple injections of not only a rushed vaccine but of an entirely new class of vaccine’.
He said that, “NSW Health published weekly data showing, the fewer vaccines you had, the less likely you went to hospital or ICU. The fatality rate was similar for the vaxxed and the unvaxxed.”
He said that, “since the vaccine rollout there has been a 15-20 per cent increase in excess deaths in nations like Australia that had mass mRNA injections,” and questioned whether this might have anything to do with the vaccines, or from locking people up for so long.
He said that take-up of the fifth shot is low – “too many know of others with bad reactions.”
He said that ivermectin, an anti-viral drug that won the 2015 Nobel Prize for Medicine, was disingenuously smeared as a horse dewormer. He noted the financial incentives for suppressing ivermectin as a potential treatment for Covid, despite researchers around the world testifying to its efficacy.
He said that there have been over 137,000 adverse events reported to the Therapeutic Goods Administration following Covid vaccination, and that many drugs have been pulled from the market for far less than this.
Agree or disagree as you please, but all these claims are evidence-based. As a friend of mine said when disagreeing with my insistence, in late 2021, that the vaccines would not be effective in preventing/reducing transmission, “We believe different scientists.”
The video of Ruddick’s maiden speech has been reposted on YouTube via the Lib Dems main account, and has not yet been taken down. You can watch the speech in full below, or via the Lib Dems twitter account.
John Ruddick’s first speech as MP in Parliament
He says, “Many want to move on from COVID, but I don’t,” and he’s right, we should NEVER forget.. pic.twitter.com/4oCSi5Iyth— Freda (@Freda8991) July 4, 2023
https://platform.twitter.com/widgets.js
Spectator has also published the transcript of Ruddick’s speech in full.
A spokesperson for the Lib Dems said on Friday,
“We’re obviously very disappointed that YouTube feels the need to censor something not only from NSW Parliament but as time-honoured as a maiden speech, but we also oddly must thank them as we’ve benefited from the Streisand effect.
“The video already has over 225,000 views on one tweet, and is also being viewed in Facebook groups, on Telegram and (for now anyway) a little bit on the federal LibDems YouTube page. The interest in the speech certainly seems to have increased exponentially after the YouTube removal, and we’re getting inundated with positive comments and questions.”
Other notable ‘truth bombs’ from Ruddick’s speech include his criticism of blown-out government debt, and his concern that pursuing a net zero carbon economy is a “reckless folly.”
While the Lib Dems are benefiting from the Streisand effect for the time being, Member of the European Parliament, Christine Anderson, is dealing with YouTube censorship by suing the social media platform. Anderson reports that YouTube blocked two videos from parliamentary sessions in which she acted on the official Special Committee on the COVID-19 Pandemic.
Anderson has described YouTube’s censorship as “anti-democratic,” saying, “I will not put up with uncontrolled influence on this scale, which is why I have now taken the necessary legal steps to… ensure that all citizens have unfiltered access to relevant information at all times.”
Tyler Durden
Sat, 07/08/2023 – 22:20 - Visualizing America's 1 Billion Square Feet Of Empty Office Space
Visualizing America’s 1 Billion Square Feet Of Empty Office Space
In April, one of America’s largest office owners, Brookfield, defaulted on a $161 million loan.
The loan, covering 12 office buildings, was mainly concentrated in the Washington, D.C. market. Faced with low occupancy rates, it joined other office giants Blackstone and WeWork defaulting on office debt this year.
As Visual Capitalist’s Dorothy Neufeld shows in the graphic below, nearly 1 billion square feet of empty office space in the U.S. based on data from JLL – and the wider implications of office towers standing empty.
Ranking U.S. Cities by Empty Office Space
At the end of the first quarter of 2023, a record 963 million square feet of office space was unoccupied in America. An estimated five to 10 office towers are at risk of defaulting each month according to Manus Clancy, senior managing director at Trepp.
Here are cities ranked by their total square feet of office vacancy as of Q1 2023. Figures include central business districts and suburban areas.
Ranking Market Total Vacancy (SF) Total Vacancy (%) 1 New York 75.8M 16.1% 2 Washington, D.C. 74.0M 20.8% 3 Chicago 63.2M 23.5% 4 Dallas 53.5M 25.0% 5 Houston 49.3M 25.6% 6 Los Angeles 47.1M 24.1% 7 New Jersey 43.3M 25.8% 8 Atlanta 38.1M 21.6% 9 Boston 31.8M 19.1% 10 Philadelphia 27.8M 18.8% 11 Denver 27.3M 21.6% 12 Phoenix 25.2M 23.9% 13 San Francisco 22.8M 26.4% 14 Seattle 21.4M 17.7% 15 Minneapolis 19.9M 19.7% 16 Detroit 18.0M 19.3% 17 Orange County 17.7M 17.6% 18 Salt Lake City 13.9M 18.5% 19 Kansas City 13.8M 20.8% 20 Pittsburgh 13.8M 21.8% 21 Charlotte 13.7M 20.6% 22 Austin 13.6M 18.9% 23 Baltimore 13.1M 18.2% 24 Portland 12.8M 17.5% 25 Silicon Valley 12.1M 17.3% 26 Oakland–East Bay 11.7M 22.0% 27 San Diego 10.7M 12.3% 28 St. Louis 10.5M 21.9% 29 Cincinnati 10.1M 21.4% 30 Sacramento 9.9M 19.6% 31 Fairfield County 9.7M 25.4% 32 Columbus 9.7M 21.7% 33 Milwaukee 9.2M 24.0% 34 Nashville 9.0M 18.9% 35 Raleigh-Durham 8.9M 15.2% 36 Indianapolis 8.6M 22.4% 37 Tampa 8.2M 17.2% 38 Fort Worth 7.6M 16.7% 39 Miami 7.6M 16.2% 40 Cleveland 7.3M 18.3% 41 San Antonio 7.2M 17.8% 42 Long Island 6.3M 15.2% 43 Westchester County 5.8M 22.1% 44 Jacksonville 5.4M 18.6% 45 Orlando 5.0M 13.3% 46 San Francisco Peninsula 4.4M 13.3% 47 Richmond 4.3M 13.3% 48 Fort Lauderdale 4.3M 16.1% 49 North San Francisco Bay 4.0M 18.3% 50 Louisville 3.6M 16.8% 51 Des Moines 3.2M 12.0% 52 Hampton Roads 3.1M 14.7% 53 West Palm Beach 2.4M 10.3% 54 Grand Rapids 1.8M 13.2% United States 962.5M 20.2% Numbers may not total 100 due to rounding.
New York has roughly 76 million square feet of empty office space. If this were stacked as a single office building, it would stretch 7 miles into the atmosphere. In 2019, the office sector accounted for about a third of all jobs in the city.
Falling closely behind is Washington, D.C. with a 21% vacancy rate—8% higher than what is typically considered healthy. Occupiers are downsizing given remote work trends, yet some office buildings are being converted to residential properties, curtailing vacancy rates.
Across 54 markets in the dataset, San Francisco has the highest vacancy rate at over 26%. Prior to the pandemic, vacancy rates were about 4%. This year, Salesforce walked away from a 30-story tower in downtown San Francisco spanning 104,000 square feet in an effort to cut costs.
Overall, rising interest rates and higher vacancies have hurt U.S. office markets, with many cities potentially seeing an uptick in vacancies going forward.
Empty Office Space: Impact on Banks
Office building valuations are projected to fall 30% in 2023 according to Richard Barkham, global chief economist at CBRE Group.
A sharp decline in property values could potentially result in steep losses for banks. This is especially true for small and regional banks that make up the majority of U.S. office loans. Big banks cover roughly 20% of office and downtown retail totals.
Consider how commercial real estate exposure breaks down by different types of banks:
Bank Assets Commercial Real Estate Loans
% of Total AssetsShare of Industry Assets <$100M 11.3% 0.2% $100M-$1B 26.9% 4.7% $1B-$10B 32.5% 9.7% $10B-$250B 18.1% 30.1% >$250B 5.6% 55.5% Source: FitchRatings
For big banks, a recent stress test by the Federal Reserve shows that a 40% decline in commercial property values could result in a $65 billion loss on their commercial loan portfolios. The good news is that many big banks are sitting on healthy capital reserves based on requirements set in place after the global financial crisis.
Smaller banks are a different story. Many have higher loan concentrations and less oversight on reserve requirements. If these loan portfolios deteriorate, banks may face a downgrade in ratings and higher credit losses.
Additionally, banks with loans in markets with high vacancy rates like San Francisco, Houston, and Washington, D.C. could see more elevated risk.
How High Rates Could Escalate Losses
Adding further strain are the ramifications of higher interest rates.
Higher rates have negatively impacted smaller banks’ balance sheets—meaning they are less likely to issue new loans. This is projected to cause commercial real estate transaction volume to decline 27% in 2023, contributing to lower prices. Banks have already slowed lending for commercial real estate in 2023 due to credit quality concerns.
The good news is that some banks are extending existing loan terms or restructuring debt. In this way, banks are willing to negotiate new loan agreements to prevent widespread foreclosures from hurting their commercial loan portfolios. Short-term extensions on existing loans were often seen during the global financial crisis.
Still, foreclosures could take place if restructuring the loan doesn’t make financial sense.
Overall, only so many banks may be willing to wait out the uncertainty with loan extensions if fundamentals continue to worsen. Offices that are positioned to weather declines will likely have better quality, location, roster of tenants, and financing structures.
Tyler Durden
Sat, 07/08/2023 – 21:45 - Hudson On The United States' Financial Quandary: ZIRP's Only Exit Path Is A Crash
Hudson On The United States’ Financial Quandary: ZIRP’s Only Exit Path Is A Crash
Authored by Michael Hudson via NakedCapitalism.com
Originally published in the Investigación Económica (Economic Research), produced by UNAM (Autonomous National University of Mexico)
Abstract
Interest-bearing debt grows exponentially, in an upsweep. The non-financial economy of production and consumption grows more slowly as income is diverted to carry the debt overhead. A crash occurs when a large part of the economy cannot pay its scheduled debt service. That point arrived for the U.S. economy in 2008, but was minimized by a bank bailout, followed by a 14-year boom as the Federal Reserve increased bank liquidity by its Zero Interest-Rate Policy (ZIRP). Flooding the capital markets with easy credit quintupled stock prices and engendered the largest bond market boom in U.S. history, but did not revive tangible capital investment, real wages or prosperity for the non-financial economy at large.
Reversing the ZIRP in 2022 caused bond prices to fall and ended the runup of stock market and real estate prices. The great 14-year debt increase faced sharply rising interest charges, and by spring 2023 a number of banks failed, but all their depositors were bailed out by the FDIC and Federal Reserve. The open question is now whether the U.S. economy will face the financial crash that was postponed from 2009 onwards by the vast expansion of debt under ZIRP that has added to the economy’s debt burden.
INTRODUCTION
Throughout history the buildup of debt has tended to outstrip the ability of debtors to pay. Any rate of interest will double what is owed over time (e.g., at 3% the doubling time is almost 25 years, but 14 years at 5%). Paying carrying charges on the rising debt overhead slows the economy and hence its ability to pay. That is the dynamic of debt deflation: rising debt service as a proportion of income. Carrying charges may rise to reflect the growing risk of non-payment as arrears and defaults rise. The non-financial economy of production and consumption grows more slowly, tapering off in an S-curve as income is diverted away from new tangible investment to carry the debt (see graph 1). The crash usually occurs quickly.
Graph 1. Financial Crisis Pattern vs. Business Cycle
Governments may try to inflate their societies out of debt by creating yet more credit to postpone the inevitable crash, by bailing out lenders or debtors – mainly lenders, who have captured control of government policy. But the debt crisis ultimately must be resolved either by transferring property from debtors to creditors or by writing down debts.
The National Income and Product Accounts (NIPA) count the financial sector as producing a product, and adds its interest income and other financial charges to the economy as “earnings,” not subtracting them as rentieroverhead. The rise in financial wealth, “capital gains,” interest and related creditor claims on the economy are held to reflect a productive contribution, not an extractive charge leaving the economy with less to spend on new consumption and investment.
The problem gets worse as this financial extraction grows larger. As credit and debt expanded in the decade leading up to the 2008 junk mortgage crisis, banks found fewer credit-worthy projects available, and turned to less viable loan markets. Banks wrote mortgage loans with rising debt/income and debt/asset ratios. Racial and ethnic minorities were the most overstretched borrowers, falling into payment arrears and defaulting. Real estate prices crashed, causing the market value of bad mortgage loans to fall below what many banks owed their depositors.
There is nothing “natural” or inevitable about how such bank insolvency and negative equity will be resolved. The solution always is political. At issue is who will absorb the loss: depositors, indebted borrowers, bank bondholders and stockholders, or the government via the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve bailouts?
Less often asked is who will be the winners. Since 2009 it has been America’s biggest banks and the wealthiest One Percent – the very parties whose greed and short-sighted policies caused the crash. Having been deemed “systemically important,” meaning Too Big To Jail (TBTJ, sometimes cleaned up to read Too Big To Fail, TBTF), they were rescued. And today (2023), that special status is making them the beneficiaries of a flight to safety in the wake of the FDIC’s decision following the collapse of Silicon Valley Bank that even large depositors should not lose a penny, no matter how poorly their banks have coped with the Fed’s policy of rising interest rates that have reduced the market value of their banks’ assets, aggravated by falling post-Covid demand for office space lowering commercial rents and leading to mortgage defaults. Once again, this time by protecting depositors, the Federal Reserve and Treasury are trying to save the economy’s debt overhead from crashing and wiping out the nominal bank loans and other financial assets that cannot be paid.
The usual result of a crash is a wave of foreclosures transferring property from debtors to creditors, but leading banks also may become insolvent as their debtors default. That means that their bondholders lose and counterparties cannot be paid.
The 2008 crash saw an estimated eight to ten million over-mortgaged home buyers lose their homes, but the banks were bailed out by the Federal Reserve and Treasury. Instead of the economy’s long buildup of debt being written down, the Federal Reserve increased bank liquidity by its Zero Interest-Rate Policy (ZIRP). This provided banks with enough liquidity to help the economy “borrow its way out of debt” by using low-interest credit to buy real estate, stocks and bonds yielding higher rates of return.
The 14-year boom resulting from this debt leveraging featured an innovation in the economy’s ability to sustain growth in its debt overhead: Debt service was paid not only out of current income but largely out of asset-price gains – “capital” gains, meaning finance-capital gains engineered by fintech, financial technology. Lowering interest rates created opportunities to borrow to buy real estate, stocks and bonds yielding a higher return. This arbitrage quintupled stock prices and created the largest bond market boom in U.S. history, as well as fueling a real-estate boom marked especially by private capital firms as absentee owners of rental properties. But tangible capital investment did not recover, nor did real wages and prosperity for the non-financial economy at large.
Ending the ZIRP in 2022 reversed this arbitrage dynamic. Rising interest rates caused bond prices to fall and ended the runup of stock market and real estate prices – in an economy whose debt overhead had risen sharply instead of being wiped out in the aftermath of 2008. In that sense, today’s debt deflation and its associated financial fragility that has already seen a number of banks fail are still part of the aftermath of trying to solve the debt crisis by creating a flood of debt to lend the economy enough credit to inflate asset prices and enable debts to be paid.
That poses a basic question: can a debt crisis really be resolved by creating yet more debt? That is how Ponzi schemes are kept going. But when does the “long run” arrive in which, as Keynes once remarked, “we are all dead”? The remainder of the article is structured as follows. Section 2 discusses President Obama’s choice to bail out Wall Street, section 3 examines the inflation of asset prices brought about by the Fed’s ZIRP and section 4 analyzes the negative impact of the Fed ending its ZIRP. Section 5 delves into the future of the financialized U.S. economy.
The Obama Administration’s decision to bail out Wall Street, not the economy
The 2008-2009 crash was caused by U.S. banks writing fraudulent loans, packaging them and selling them to gullible pension funds, German state banks and other institutional buyers. The mainstream press popularized the term “junk mortgage,” meaning a loan far in excess of the reasonable ability to be paid by NINJA borrowers – those with No Income, No Jobs and no Assets. Stories spread of crooked mortgage brokers hiring appraisers to report fictitiously high property assessments to justify loans to buyers whom they coached to report fictitiously high income to make it appear that these junk mortgages could be carried.
There was widespread awareness that an unsustainable debt overhead was building up. Even at the Federal Reserve Board, Ed Gramlich (1997-2005) warned about these fictitious valuations. But Chairman Alan Greenspan (1987-2006) announced his faith that banks would not find it good business to mislead people, so that was unthinkable. Embracing the libertarian anti-regulatory philosophy that led to his being appointed Fed Chairman in the first place, he refused to see that bank managers live in the short run, not caring about long-term relationships or how their financial operations may adversely affect the economy at large.
This blind spot seems to be a requirement to rise in academia and the government’s regulatory club. The idea that a debt pyramid may be unsustainable makes no appearance in the models taught in today’s neoliberal economics departments and followed in government circles staffed by their graduates. So nothing was done to deter the financial pyramid of speculative packaged mortgage loans.
Running up to the November 2008 election, President Obama promised voters to write down mortgage debts to realistic market price levels so that bank victims could keep their homes. But honoring that promise would have resulted in heavy bank losses, and the Democratic Party’s major campaign contributors were Wall Street giants. The largest banks where mortgage fraud was largely concentrated were the most insolvent, headed by Citigroup and Wells Fargo, followed by JP Morgan Chase. Yet these largest banks were classified as being “systemically important,” along with brokerage houses such as Goldman Sachs and other major financial institutions that the Obama Administration redefined as “banks” so that they could receive Federal Reserve largesse, in contrast to the hapless victims of predatory junk mortgages.
FDIC Chair Sheila Bair wanted to take Citibank, the most reported offender, into government hands. But bank lobbyists claimed that the economy’s health and even survival required protecting the financial sector and keeping its most notorious failures from being taken over. Parroting the usual junk-economic logic given credentials by Nobel Prize awards and TV media appearances, bankers pointed out that making them bear the cost of writing down their fictitiously high mortgages to realistic market levels and the ability of debtors to pay would leave much of the financial sector insolvent, going on to claim that they needed to be rescued to save the economy. This remains the same logic used today in saving banks from the negative equity resulting from ending the Federal Reserve’s Zero Interest Rate Policy (ZIRP).
Not acknowledged in 2009 was that failure to write down bad loans would lead millions of families to lose their homes. Today’s economic model-builders call such considerations “externalities.” The social and environmental dimensions, the widening of income and wealth inequality and the rising debt overhead, are dismissed as “external” to the financial sector’s tunnel vision and the NIPA and GDP accounting concepts that it sponsors.
That willful blindness by economists, regulators and financial institutions, selfishly concerned with avoiding their own loss without caring for the rest of the economy, enabled the TBTJ/F excuse for not prosecuting bankers and writing down their fraudulent mortgage loans. Instead, the Fed provided banks with enough money to prevent their bondholders from absorbing the loss, and the FDIC’s deposit-insurance limit of $100,000 was raised to $250,000 in July 2010.
Banks had great political leverage in the threat to cause widespread economic collapse if they did not get their way and were required to take responsibility for their financial mismanagement. So instead of being obliged to write down bad mortgage loans, these debts were kept on the books and an estimated eight to ten million U.S. families were evicted. The “real” economy was left to absorb the bad-loan loss.
Homes under foreclosure were bought largely by private capital firms and turned into rental properties. The U.S. homeownership rate – the badge of membership in the middle class, enabling it to think of itself as property owners with a harmony of interest with rentiers instead of as wage-earners – fell from 69% in 2005 to 63.7% by 2015 (see Graph 2).
Home debt/equity rates soared from just 37% in 2000 to 55% in 2014 (see Graph 3). In other words, the equity of homeowners peaked at 63 percent in 2000 but then fell steadily to just 45% in 2014 – meaning that banks held most of the value of U.S. owner-occupied homes.
On the broadest level we can see that the 19th century’s long fight by classical economists to free industrial capitalism from the landlord class and economic rent has given way to a resurgent rentier economy. The financial sector is the new rentier class, and it is turning economies back into rentier capitalism – with rent being paid as interest while absentee real estate companies seek their major returns in the form of “capital” gains, that is, financialized asset-price inflation.
Inflating asset prices by flooding the financial markets with credit
From the Federal Reserve’s vantage point, the economic problem after the 2008 crash was how to restore and even enhance the solvency of its member banks, not how to protect the “real” economy or its home ownership rate. The Fed orchestrated a vast “easing of credit” to raise prices for real estate, stocks and bonds. That not only revived the valuation of assets pledged as collateral against mortgages and other bank loans but has fueled a 15-year asset-price inflation. The Fed did this by raising its backing for bank reserves from $2 trillion in 2008 to $9 trillion today. This $7 trillion easy-credit policy lowered interest rates to 0.2 percent for short-term Treasury bills and what banks paid their savings depositors.
The basic principle behind ZIRP was simple. The price of any asset is theoretically determined by dividing its income by the discount rate: Price = income/interest (P = Y/i ). As interest rates plunged to near-zero, the capitalized value of real estate, corporations, stocks and bonds rose inversely. Fed Chairman Ben Bernanke (2006-2014) was celebrated as the savior of Wall Street, which the popular media depicted as synonymous with the economy at large.
The result was the largest bond-market boom in history. Real estate prices recovered, enabling banks to avoid losses on mortgages as they auctioned off foreclosed homes in a “recovering” market, whose character was changing from owner-occupied housing to rental housing. Stock prices, which had fallen to 6,594 in March 2009, far surpassed their pre-crash high of 14,165 in October 2007 to more than quintuple to over 35,000 by 2020. The lion’s share of gains accrued to the economy’s wealthiest ten percent, mostly to the One Percent who own most bonds and stocks.
Artificially low interest rates enabled private finance capital and corporations to borrow low-cost bank credit to bid up prices for real estate, stocks and bonds whose rents, profits and fixed interest yields exceeded the lowered borrowing costs. The ZIRP’s higher debt ratios inflated real estate and stock prices to bail out the banks and other creditors by creating a bonanza of financial gains. But only asset prices were inflated, not wages or disposable personal income after paying debt service. Housing prices soared, but so did the economy’s debt overhead. The ZIRP thus planted a financial depth charge: what to do if and when interest rates were allowed to return to more normal levels.
A recent report by McKinsey (2023) calculates that asset price inflation over the two decades from 2000 to 2021 “created about $160 trillion in ‘paper wealth,’” despite the fact that “economic growth was sluggish and inequality rose,” so that “Valuations of assets like equity and real estate grew faster than real economic output. … In aggregate, the global balance sheet grew 1.3 times faster than GDP. It quadrupled to reach $1.6 quintillion in assets, consisting of $610 trillion in real assets, $520 trillion in financial assets outside the financial sector, and $500 trillion within the financial sector.”
This enormous “capital gain” or “paper wealth” was debt-financed. “Globally, for every $1.00 of net investment, $1.90 of additional debt was created. Much of this debt financed new purchases of existing assets. Rising real estate values and low interest rates meant that households could borrow more against existing homes. Rising equity values meant that corporates could use leverage to reduce their cost of capital, finance mergers and acquisitions, conduct share buybacks, or increase cash buffers. Governments also added debt, particularly in response to the global financial crisis and the pandemic.”
The Fed reverses ZIRP to cause a recession and prevent wages from rising
In March 2022 the Fed announced that it intended to cope with rising wage levels (“inflation”) by raising interest rates. Fed Chairman Jerome Powell (2018-present) explained that it was necessary to slow the economy to create enough unemployment to hold down wages. His right-wing illusion was that the inflation was caused by rising wages (or by government spending too much money into the economy, increasing the demand for labor and thereby raising wage and price levels).
In reality, of course, the inflation was caused largely by U.S.-NATO sanctions against Russian exports in 2022, causing a spike in world energy and food prices, while corporate “greedflation” raised prices where there was enough monopoly power to do so. Rents also increased sharply, following the rise in housing prices encouraged by the flood of mortgage credit to absentee owners.
Ending ZIRP reversed the Fed’s asset-price inflation policy
The Fed’s announcement of its intention to raise interest rates warned investors that this would reverse the asset-price inflation that ZIRP had fueled. Rising interest rates lower the capitalization rate for bonds, stocks and real estate. To avoid taking a price loss for these assets, “smart money” (meaning wealthy investors) sold long-term bonds and other securities and replaced them with short-term Treasury bills and high-liquidity money-market funds. Their aim was simply to conserve the remarkable runup in financial wealth subsidized during the 2009-2022 ZIRP.
The Fed’s aim in rising interest rates was to hurt labor by bringing on a recession, not to hurt its bank clients. But ending ZIRP caused a systemic problem for banks: Collectively they were too large to have the maneuverability that private investors enjoyed. If banks tried en masse to move out of long-term bonds and mortgages by selling their portfolios of 30-year mortgages and government bonds, prices for these securities would plunge – to a level reflecting the Fed’s targeted 4 percent interest rate.
There was little by way of an escape route for banks to buy hedge contracts to protect themselves against the prospective price decline of the assets backing their loans and deposits. Any reasonable hedge seller would have calculated how much to charge for guaranteeing securities in the face of rising interest rates causing securities with a face value of, say, $1,000 to fall to, say, $700. A hedge contract promising to pay the bank $1,000 would have had to be priced at least at $300 to cover the expected price decline.
So the banking system as a whole was locked into holding loans and securities whose market price would fall as the Federal Reserve tightened credit. Rising interest rates threatened to push many banks into negative equity – the problem that banks had faced in 2008-2009.
Federal and state regulators ignored this interest-rate threat to bank solvency. They focused narrowly on whether the banking system’s debtors and bond issuers could pay what they owed. It was obvious that the Treasury could keep paying interest on government bonds, because it can always simply print the money to do so. And housing mortgages were secure, given the housing-price boom. Outright fraud thus was no longer a major worry. The new problem, seemingly unanticipated by regulators, was that capitalization rates would fall as interest rates rose, causing asset prices to decline, leaving banks with insufficient reserves to cover their deposit liabilities.
Bank reporting rules do not require them to report the actual market value of their assets. They are allowed to keep them on their books at their original acquisition price, even when that initial “book value” no longer is realistic. If banks were obliged to report the evolving market reality, it would have been obvious that the financial system had been turned into an unsustainable Ponzi scheme, kept afloat only by the Fed flooding the market with liquidity.
Such bubble economies have been blamed on “popular delusions” ever since the Mississippi and South Sea bubbles of the 1710s in France and England. But all financial bubbles have been sponsored by governments. To escape from their public debt burden, France and England engineered debt-for-equity swaps of shares in companies with a monopoly in the slave trade and plantation agriculture – the growth sectors of the early 18th century – with payment made in government bonds. But the 2009-2023 stock market bubble has been engineered to rescue the private sector, largely at government expense instead of it being the beneficiary. That is a major characteristic of today’s finance capitalism.
The essence of “wealth creation” under finance capitalism is to create asset-price “capital” gains. But the economic reality that such financialized gains cannot be sustained led to the term “fictitious capital” being used already in the 19th century. The idea that inflating asset prices can enable economies to pay their debts out of finance-capital gains for more than just a short period has been promoted by an unrealistic economic theory that depicts any asset price as reflecting intrinsic value, not puffery or financial manipulation of stock, bond and real estate prices.
Today’s bank assets are estimated to be $2 trillion less than their nominal book value. But banks were able to ignore this reality as long as they did not have to start selling off their real-estate mortgages and government bonds. All that they had to fear was that depositors would start withdrawing their money when they saw the widening disparity between the typical 0.2 percent interest that banks were paying on savings deposits and what the government was paying on safe U.S. Treasury securities.
That interest-rate disparity is what led to the eruption of bank failures in spring 2023. At first that seemed to be an isolated problem unique to each local bank failure. When Sam Bankman-Fried’s FTX fraud showed the problems of cryptocurrency as an investment, holders began to sell. What was said to be “peer to peer” lending turned out to be mutual funds in which cryptocurrency buyers withdrew money from banks and turned them over to the cryptofund managers, with no regulation. The “peers” at the other end turned out to be the managers behind an opaque balance sheet. That realization led customers to withdraw, and crypto sites met these withdrawals by drawing down their own bank deposits. Many bankruptcies ensued from what turned out to be Ponzi schemes. Two banks failed as a result of heavy loans to the cryptocurrency sector and reliance on deposits from it: Silvergate Bank on March 8 and Signature Bank in New York on March 12.
The other set of failed banks were those with a high proportion of large depositors: Silicon Valley Bank (SVB) on March 10 and neighboring First Republic Bank in San Francisco on May 1. Their major customers were private capital backers of local information-technology startups. These large financially savvy depositors were substantially above the $250,000 FDIC-insured limit and also were the most willing to move their money into government bonds and notes that paid higher interest than the 0.2 percent that SVB and other banks were paying.
Another set of high-risk banks are community banks with a high proportion of long-term mortgage loans against commercial real estate. Office prices are plunging as occupancy rates decline now that employers have found that they need much less space for their on-site work force since Covid has led many workers to work from home. As a recent Wall Street Journal report explains: “Around one-third of all commercial real-estate lending in the U.S. is floating rate … Most lenders of variable-rate debt require borrowers to buy an interest-rate cap that limits their exposure to rising rates. … Replacing these hedges once they expire is now very expensive. A three-year cap at 3% for a $100 million loan cost $23,000 in 2020. A one-year extension now costs $2.3 million.”
It is cheaper to default on heavily debt-leveraged properties. Large real estate companies, such as Brookfield Asset Management (with assets of $825 billion) which saw its mortgage payments rise by 47 percent in the past year, are walking away as commercial rents fall short of the carrying charges on their floating-rate mortgages. Blackstone and other firms are also bailing out. Stock-market prices for real-estate investment trusts (REITs) have fallen by more than half since the Covid pandemic began in 2020, reflecting office-building price declines by about a third so far, and still plunging.
Many banks are now offering depositors interest in the 5 percent range to deter a deposit drain, especially as a “flight to safety” is concentrating deposits in the large “systemically critical banks” blessed with FDIC guarantees that customers will not lose their money even when their deposits exceed the nominal FDIC limit. These are precisely the banks whose behavior has been the most outright reckless. As Pam Martens has documented on her e-site “Wall Street on Parade,” JP Morgan Chase, Citigroup and Wells Fargo are serial offenders, the most responsible for the reckless lending that contributed to the financial system’s negative equity in the first place. Yet they have been made the winners, the new havens in today’s debt-ridden economy.
It turns out that being “systematically important” means that one belongs to the group of banks that control government policy of the financial sector in their own favor. It means being important enough to oppose the appointment of any Federal Reserve officials, bank regulators and Treasury officers who would not protect these banks from regulation, from prosecution for fraud, and from being taken over by the FDIC and government when their asset-price losses exceed their equity and leave them as zombie banks.
Where will the financialized U.S. economy go from here?
Rising interest rates are winding the clock back to the same negative-equity condition that the banking system faced in 2008-2009. When Silicon Valley Bank’s “unrealized loss” of $163 billion on falling prices for its government bondholdings and mortgages exceeded its equity base, that was merely a scale model of the condition of many big U.S. banks in late 2008.
The problem this time is not bank-mortgage fraud but falling asset-prices resulting from the Fed raising interest rates. And behind that is the most basic underlying problem: The banking system’s product is debt, which is extracting a rising share of national income. The economics profession, the Federal Reserve, bank regulators and the Treasury share a blind spot when it comes to confronting the degree to which debt is a burden draining income from the “real” economy of production and consumption.
The trillions of dollars in nominal financial wealth registered by the bond, stock and real estate markets since ZIRP was initiated has been plowed back with yet more credit into more asset purchases to keep the price-rise going with rising debt leverage, bidding up financial claims on property rights, especially rent-yielding claims. All this financialization was given tax advantages over ‘real” capital investment.
The $7 trillion of Fed support for the banking system to lend out and bid up prices for real estate, stocks and bonds could have been used to reduce carrying charges on homes and other real estate. That could have helped the economy lower its housing, living and employment costs and become more competitive. Instead, the role of the Federal Reserve and privatized banking system has been to create yet more credit to keep bidding up asset prices.
The beneficiaries have been mainly the wealthiest One Percent, not the economy at large. Inflation-adjusted wages have remained in the doldrums, enabling corporate profits and cash flow to increase – but over 90 percent of this corporate revenue has been paid out as dividends or spent on corporate stock buyback programs, not invested in tangible new means of production or employment. Many corporate managers have even borrowed to raise their stock prices by buying back their own shares.
Today’s financial system has not managed its credit creation and wealth to help the economy grow. Debt-inflated housing prices have increased the economy’s cost structure, and debt deflation is blocking recovery. The household sector, corporate sector, and state and local budgets are fully loaned up, and default rates are rising for auto loans, student loans, credit-card loans, and mortgage loans, especially for commercial office buildings as noted above.
Looking back over recent decades, the Federal Reserve and Treasury have created a banking crisis of immense proportions by protecting commercial banks and now even brokerage houses and the shadow banking system as clients to be served instead of shaping financial markets to promote overall economic growth. Behind this financial crisis is a crisis in economic theory that is largely a product of academic and media lobbying by the Finance, Insurance and Real Estate (FIRE) sector to depict rentier income and property claims as being part of the production-and-consumption economy, not external to it as an extractive layer.
And behind this neoliberal theory that has replaced classical political economy is the rentier dynamic of finance capitalism. Its essence has been to financialize industry, not to industrialize finance. The monetary and credit system has been increasingly privatized and financial regulatory agencies have been captured by the sectors that they are supposed to regulate in the economy’s long-term interest. The financial sector notoriously has lived in the short run, and tried to free itself from any constraint on its extractive and outright predatory behavior that burdens the non-financial economy.
The exponentially rising debt overhead is the financial equivalent of environmental pollution causing global warming, disabling the economy’s health much as long Covid incapacitates humans. The result today is an economic quandary – something more serious than just a “problem.” A problem can be solved, but a quandary has no solution. Any move will make the situation even worse. Mathematicians express this as being in an “optimum position”: one from which any move will make matters worse.
That is the kind of optimum position in which the U.S. economy finds itself today. If the Fed and other central banks keep interest rates high to bring about a recession to lower wages, the economy will shrink and its ability to carry its debt overhead – and to make further stock-market and real-estate price gains – will be eroded. The debt arrears that already are mounting up will lead to defaults, which already are occurring in the commercial real estate sector.
Trying to return to a ZIRP to sustain asset prices is much harder in the face of today’s legacy of post-2009 debt – not to mention the pre-2009 debt that crashed. Bank reserves have shrunk, and in any case the economy is largely “loaned up” and can hardly take on any more debt. So one path or another, the end-result of ZIRP – and the Obama Administration’s failure to write down the economy’s bad-debt overhead – must be a crash.
But a crash would not mean that the economy’s debt problem will be “solved.” As long as the guiding policy principle remains “Big fish eats little fish,” the economy will polarize and the concentration of financial wealth will accelerate as debt-burdened assets will pass into the hands of creditors whose wealth has been so vastly increased since 2009.
* * *
Michael Hudson, is a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is The Destiny of Civilization.
Tyler Durden
Sat, 07/08/2023 – 21:10 - Anti-Gunner David Hogg Visits Gun Range, Believes "30 Round Mags" Are For "War"
Anti-Gunner David Hogg Visits Gun Range, Believes “30 Round Mags” Are For “War”
Gun-control activist and now ‘Harvard-educated’ David Hogg visited a gun range on Wednesday. He apparently shot a semi-automatic rifle in a ‘controlled’ environment to claim magazines over ten rounds are only for “war and people who don’t know how to shoot.”
“If you need more than 10 rounds to hit something you need more range time or you need glasses, not a larger magazine. Hell, if you’re that bad of a shot you’re safer with a baseball bat because a gun will probably be turned on you. Especially if you are shooting a rifle and you can’t hit what you are aiming for in 10 rounds you need to check your sights, check your eye dominance, and/or improve trigger pull,” Hogg tweeted, adding, “30 round mags are for two two things, war and people who don’t know how to shoot.”
If you need more than 10 rounds to hit something you need more range time or you need glasses, not a larger magazine. Hell, if you’re that bad of a shot you’re safer with a baseball bat because a gun will probably be turned on you. Especially if you are shooting a rifle and you…
— David Hogg 🟧 (@davidhogg111) July 6, 2023
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Hogg continued, “I know many who follow me haven’t shot guns or semi automatic rifles before. Even with zero training I could shoot a pretty tight grouping at 20 yards.”
Judging by the picture the young gun control activist tweeted, his groupings were far from ‘tight’ — especially at such a short distance.
“You don’t need 30 round mags. If you can’t stop whatever you need to with 10 7.62 rounds. You got bigger problems,” he told his 1.2 million followers.
Yet the Harvard-educated gun-control activist spends one day at an indoor range in a controlled setting and now believes he’s an ‘expert’ in all things guns.
However, the gun blog Bearing Arms noted:
My problem here is that Hogg is taking a day at the range to provide “proof” that no one needs more than 10 rounds. He’s trying to use this to argue that there’s no reason to not have restrictions on magazine capacity. He’s basically pretending to be an authority so he can try and justify the positions he already had.
The problem is that there are too many people who know more than him, for one thing.
In fact, based on this bloviating, I’d say that includes almost everyone not a braindead moron.
For another, the Constitution isn’t about what David Hogg says we need. It’s about preserving the right of the people to make that determination for themselves.
We would like to know if Hogg requested his security team only to carry ten round clips.
Like any fresh Ivy League school grad who believes they’re now the voice of logic, many have never been in the real world. Many on Twitter pointed this out about Hogg:
“Go run a mile at full speed then shoot for accuracy. Do 45 pushups then shoot for accuracy. Wake up from a dead sleep to a loud noise and shoot for accuracy. Go on, prove it. Bet you won’t,” one person tweeted.
“Translation: I’ve never been in a firefight,” someone else said.
Someone pointed out, “This moron can’t envision more than one attacker at a time?”
The key issue here is that Hogg’s lack of real-world experience raises questions. Deciding magazine capacity purely based on one day at an indoor gun range is gross misinformation.
Tyler Durden
Sat, 07/08/2023 – 20:35 - Rickards: Will Inflation Soon Turn To Deflation?
Rickards: Will Inflation Soon Turn To Deflation?
Authored by James Rickards via DailyReckoning.com,
Can you expect continued inflation — or a trend toward disinflation and possibly even deflation?
That’s probably the most important question in economics today.
This is more than a matter of competing narratives. The question goes to the heart of modern economics (the so-called Neo-Keynesian consensus) and the models used in economic forecasting.
In truth, it goes to the heart of economics generally and helps to explain why so many forecasts are so badly wrong.
The inflation narrative is straightforward. Inflation was gaining momentum from mid-2021 until it peaked at 40-year highs in June 2022. That peak was 9.1% inflation, a rate not seen since the early 1980s. At the same time unemployment was at lows of about 3.4%, a rate not seen since the late 1960s.
This combination of high inflation and low unemployment seemed to confirm the validity of the Phillips curve, which posits an inverse correlation between inflation and unemployment. When unemployment is low, inflation is high and vice versa.
The Case for Deflation
The deflation narrative, which includes disinflation, is also straightforward. By late 2021, the Federal Reserve became increasingly concerned about inflation and decided to act. The Fed began tightening monetary policy in early 2022, reducing the base money supply by not rolling over maturing mortgages and U.S. Treasury securities.
They tightened further with a policy of 10 straight interest rate hikes beginning last March and continuing until this May. (The Fed skipped a rate hike in June 2023 but is keeping the option to hike further on the table for now.) This took the Fed’s policy rate to 5.25%, one of the fastest increases of that magnitude in Fed history.
The Fed’s monetary tightening seemed to work. Inflation has dropped from 9.1% last June to 4.0% this May. That’s still well above the Fed’s target inflation rate of 2%, but it does represent significant progress toward that goal.
It seems all the Fed has to do is raise rates one more time, perhaps this month, and wait patiently and inflation will soon fall to the Fed’s target rate. If a mild recession and higher unemployment are the price of this success, then that’s a price Fed Chair Jay Powell is prepared to pay.
If this two-year inflation-deflation narrative seems too neat and tidy, it is.
The standard economic models and simple explanations break down in a number of places. In fact, the breakdown is so extensive it calls in question whether the Fed and mainstream economists have any idea what they’re doing.
The best evidence is that they don’t.
The Phillips Curve Is Junk Science
To begin, the Phillips curve says the falling inflation should have been accompanied by higher unemployment. That hasn’t happened. The unemployment rate rose in May to 3.7% from 3.4% the month before, but the current rate is still at levels not seen since the 1960s.
The March unemployment rate was 3.5% and February’s was 3.6%. The fact is the unemployment rate has not risen much at all even after 16 months of monetary tightening.
The 1930s were a period of high unemployment and low inflation. The 1960s were a period of low unemployment and low inflation. The late 1970s were a period of high unemployment and high inflation.
History and data show that there is no correlation between unemployment and inflation.
We have to look elsewhere for explanatory factors that have real predictive value. Likewise, recession has not turned up in the data despite Fed tightening. It has been 38 months since the end of the last recession. Average annual growth during that period has been 5.88%.
Growth for the first quarter of 2023 was 1.3%. Projected growth for the second quarter of 2023 is 2.1% according to the Federal Reserve Bank of Atlanta’s GDPNow forecast. These recent growth figures are weak, but they are not recessionary.
There are ample warning signs of recession including inverted yield curves and I expect a recession soon. But it’s not here yet.
If unemployment remains low, the economy continues to grow and stock indexes are in a bubble despite the Fed’s historic monetary tightening, this calls into question the Fed’s models as well as the mainstream Neo-Keynesian consensus.
What’s going on?
The first flaw in the model-based forecasts is the failure of analysts to distinguish between inflation that emerges from the supply side and that which emerges from the demand side. The difference is crucial from a forecasting perspective.
The Psychology of Consumer Behavior
The inflation of 2021–2023 was real but it was caused by supply chain bottlenecks and shortages of critical goods and industrial inputs. The supply chain disruptions were exacerbated by unprecedented economic and financial sanctions because of the war in Ukraine.
This kind of supply-side inflation tends to be self-negating. The high prices cause reduced demand, which in turn tends to lower prices. We’re seeing this every day starting at the gas pump where the record high prices of the summer of 2022 have come down significantly (although still higher than 2021).
We see further evidence in OPEC’s decision to cut oil output as a way to prop up prices. In short, the inflation was real, but it’s already fading for reasons that have nothing to do with the Fed.
The second flaw in the models is the failure to understand the process by which inflation can shift from the supply side to the demand side if inflation persists long enough. This is a change in the psychology of consumers and plays out in behavioral responses. Neither the psychology nor the behavior is accounted for by standard models.
If inflationary psychology takes hold in the general public, it can feed on itself despite recession and declining real wages. The models don’t show this but history does. This is exactly what happened in the 1970s.
Inflation Can Be a Stubborn Thing
The inflation then began from the supply side with the Arab oil embargo of 1973 after the Yom Kippur War. The U.S. suffered a severe recession from 1973–1975 with peak unemployment of 9.0%. The U.S. had another recession in 1980, and a third in 1981–1982 in which unemployment hit 10.8%. That last recession was the most severe at the time since the Great Depression.
Despite three recessions in nine years, double-digit unemployment and two stock market crashes, the mid-to-late 1970s and early 1980s witnessed the highest inflation since the end of World War II. By 1981, inflation had reached 15% and interest rates were raised to 20% to combat the inflation.
The term for this combination of low growth and high inflation was “stagflation.” The inflation that began on the supply side in 1973 had moved to the demand side by 1977 and was out of control. Recessions couldn’t stop it.
Even in periods of economic stress, consumers respond to inflation in ways that make sense. They accelerate purchases because they expect prices to rise further. They use leverage to buy hard assets and stocks because they see these as safe havens against inflation.
Retailers raise prices to meet higher wage costs and to maintain margins. The entire process feeds on itself. And this self-help can continue even in recessionary conditions as it did in 1975 and 1981.
Stagflation has already emerged in the U.K. CPI inflation in the U.K. is 8.7%. At the same time, the U.K. is bordering on a recession with growth of 0.1% in Q4 22 and Q1 23, and forecast growth turns negative after that. Stagflation is not just an historical outlier. It’s a present-day reality.
Are we at that point? Are we in a world where human nature dictates inflationary defense tactics that feed on themselves despite possible recession and monetary tightening?
We’re seeing some evidence of this, including a new five-year contract for unionized teachers in New York City that offers back pay and signing bonuses and raises wages by 20%.
There’s no need to debate whether teachers deserve this raise. The plain fact is they got it. And there are many similar examples. How long before the pay raises to teachers and others get pushed into more consumer demand and higher retail prices that inflate away the wage gains.
The economy could party like it’s 1979.
Use the Barbell Strategy to Combat the Inflation/Deflation Tug-of-War
The odds of a recession and stock market decline are high. Still, the odds of persistent inflation and high interest rates are also high. Those two phenomena are not inconsistent despite what the standard models say.
We’ve seen them go together before in the late 1970s and in prior episodes.
We could be witnessing a case of inflation and interest rates higher for longer than Wall Street and the Fed expected. (By the way, if you’re interested in a much more in-depth analysis of this inflation-deflation conundrum, please see Chapters 4 and 5 of my most recent book Sold Out.
Given the uncertainties of the inflation/deflation struggle, the best approach for investors is a diversified barbell strategy that protects against both.
A model portfolio could have gold, natural resources and energy stocks as inflation hedges, with Treasury notes as deflation hedges, and a healthy allocation to cash between the two ends of the barbell to provide liquidity and optionality as conditions become more clear.
I’ll continue to follow these developments and keep readers informed. Stay tuned.
Tyler Durden
Sat, 07/08/2023 – 20:00 - Dutch Government Collapses Amid Deadlock Over Immigration Policy
Dutch Government Collapses Amid Deadlock Over Immigration Policy
It has not been a good month for the WEF private jet-setting globalists: first the French riots, and now the (latest) fall of the government of Dutch PM Mark Rutte, and what makes this an especially painful drubbing is that it was over an issue near and dear to the billionaire globalists’ heart: immigration.
On Friday, the Dutch government collapsed after it failed to reach a decision how to limit the flow of asylum-seekers into the country. The crisis boiled over after Rutte’s government realized it couldn’t progress beyond a stalemate over a plan proposed by the prime minister’s conservative VVD party to separate refugee families and limit the number of migrants entering the Netherlands, which two of his four-party government coalition refused to support.
“It’s no secret that the coalition partners have differing opinions about immigration policy. Today we unfortunately have to conclude that those differences have become insurmountable. Therefore I will tender the resignation of the entire cabinet to the king,” Rutte said in a televised news conference.
Rutte, the longest-service premier of the nation, resigned in the wake of the collapse, but will remain in office until a new prime minister is chosen. News agency ANP, citing the national elections committee, said elections would not be held before mid-November. A caretaker government cannot decide on new policies, but Rutte said it would not affect the country’s support for Ukraine.
Dutch Prime Minister Mark Rutte Friday’s collapse followed two days of late-night meetings between the coalition over the issue of immigration, which – like at all other Western nations – has put a strain on the already densely populated country’s housing infrastructure.
The Netherlands already has a one of Europe’s toughest immigration policies but under the pressure of right-wing parties, Rutte had for months been trying to seek ways to further reduce the inflow of asylum seekers.
The four-party coalition had been trying to hash out a deal for months on how to handle the dramatic influx of thousands of migrants seeking refuge, including from African nations and Ukraine.
As the Post reports, among the various proposals considered by the coalition was the creation of two classes of asylum, a temporary one for people fleeing conflicts and a permanent one for people trying to escape persecution, and capping the number of family members allowed to join asylum-seekers in the Netherlands.
Rutte had been pushing for a controversial proposal that would limit the entrance of children of war refugees already in the country and make families wait at least two years before they can be united. However, centrist parties D66 and Christian Union said the suggested policy went too far and rejected all plans that supported a strict crackdown on migration.
After several nights without progress, the parties decided unanimously that they could not reach an agreement on the issue and could no longer remain together in the coalition.
The immigration issue has become a key political concern and will likely be a focal point in the new election cycle. More than 21,500 non-Europeans sought asylum in the Netherlands in 2022, but that pales to what is coming: asylum applications in the country are projected to surpass 70,000 this year, topping the previous record high of 2015.
Last year, the country’s reception center turned refugees away from its overcrowded housing complexes, forcing them to sleep outside in squalid conditions. Hundreds of the homeless asylum-seekers were left with little or no access to drinking water, sanitary facilities or health care.
The Netherlands is now suffering the consequences that scandal-ridden Geert Wilders of the Party for Freedom warned about many years ago, and who was mocked and isolated by the establishment despite his widespread popular support.
Rutte’s coalition will continue serving until the next election, which might not be held before mid-November, News agency ANP reported. But don’t he will be back. After all, this will be the third time his government has collapsed; the first time was in 2012 over disagreements about austerity measures, and then again in 2021 when he resigned over a childcare subsidy debacle.
Rutte, 56, is the longest-serving government leader in Dutch history and the most senior in the EU after Hungary’s Viktor Orban. He is expected to lead his VVD party again at the next elections.
Tyler Durden
Sat, 07/08/2023 – 19:25 - Who Is Funding 'Drag Story Hours' At California Public Libraries?
Who Is Funding ‘Drag Story Hours’ At California Public Libraries?
Authored by Orlean Koehle via The Epoch Times,
…continued from Groups Protest at Drag Story Hours in California Part II
On the evening of July 5, about 30 concerned parents and grandparents showed up at the Sonoma County commissioners meeting held at the Rohnert Park Library. About 20 of us spoke and stated why we were so opposed to their sponsoring and paying for the recent four drag story hours held on Fathers’ Day weekend.
The story hours were sponsored and paid for by the Sonoma County Library Commission using our tax dollars to the tune of $500 per hour, thus $2,000 in total.
By attending the meeting, we learned that, for the most part, the 10 commissioners agreed that the drag story hour performances went well and they are proud of themselves for holding them; they are pleased that they were able to “affirm” the LGBT community. They were happy that a total of 322 parents and children attended them.
One commissioner, who is an attorney, was able to attend the story hour held at Petaluma. He borrowed a friend’s 11-year-old child so he could sit in on it. (You had to have a child with you, or you were not allowed in, even as a commissioner.)
He said that there was nothing sexual about the presentation and there were no sexual movements. The storyteller just read her books and led the children in songs and dances. Another commissioner stated that he was pleased that the protests were peaceful on both sides.
The 20 of us who were part of the protests spoke and gave a whole different view. We told of the disrespect shown to us, especially at the Santa Rosa downtown library, where someone from the pro-trans group used a loud mega horn and called us every derogatory name she could think of: bigots, fascists, hateful, fascist grandmothers, etc. Our signs were blocked by big black umbrellas, or large people stood in front of us so no one could see us or our signs.
The commissioners only gave us two minutes each to speak, so I made copies of what I wanted to say and gave them each a copy after I spoke. I spoke briefly about the history and purpose of drag story hours and my concern that many of the people telling stories to our innocent children are anything but good role models for them.
The following is part of the content of the handout that I gave to the commissioners. I had also given it to people at the drag story hour events, but most of the people of the LGBT community refused to take it.
History
According to Wikipedia, the idea for a drag queen story hour was started in San Francisco in 2015 by author Michelle Tea, who identified as “queer.” She came up with the idea after attending children’s library events with her young son and finding them welcoming but not really “affirming” of LGBT families.
Tea wanted a library hour that would be inclusive to LGBT families. Her first event was held at the Eureka Valley/Harvey Milk Memorial Branch Library in the Castro neighborhood of San Francisco. It featured several drag queens who were all well received.
The idea quickly spread, and Drag Queen Story Hour (DQSH) chapters formed across the nation and some internationally.
As of February 2020, there were 50-plus official nonprofit chapters, and drag storytellers were holding events at libraries, schools, bookstores, and museums. In October 2022, the name was officially changed to Drag Story Hour (DSH) to be more inclusive and “reflect the diverse cast of storytellers,” since there are both “queen and king” presenters now.
Wikipedia states that DSH aims to “capture the imagination and play of gender fluidity of childhood and gives kids glamorous, positive, and unabashedly queer role models.”
DSH leaders actually admit that they want children to have “queer role models.”
Attack on the Family
Christopher Rufo, who writes for City Journal, believes the real purpose of DSH and the transgender movement is far more subversive than just creating queer role models. He stated, “The drag queen [or king] might appear as a comic figure, but he/she carries an utterly serious message: the deconstruction of sex, the reconstruction of child sexuality, and the subversion of middle-class family life.”
Not only are many of these “drag queen” or “king” readers also performers in striptease bars and nightclubs (as Vera, our reader, was), some are even pedophiles.
Newsweek reported in 2019 that the drag queen storyteller in Houston, Texas, who had been performing at the public library from 2017–2019, turned out to be a registered sex offender, a pedophile. The National Pulse reported in 2021 that Brette Bloome, the head of the drag queen story hour in Milwaukee, Wisconsin, was arrested for multiple possessions of child pornography.
Is that the kind of person you want your child to be around or to someday become?
Notice the choice of books. They all have something to do with transgenderism—to affirm to a small child that the transgender, gay, or lesbian lifestyle is perfectly normal and acceptable. Experts call this “grooming” the child. The more grooming that occurs, and the more exposure to such presentations, the more the child will accept the indoctrination that he or she is receiving.
What effect did our protests and words have on the library commissioners? None at all, it seemed.
We noticed on the agenda that their next story hour will be the Sisters of Perpetual Indulgence coming to Guerneville on July 29. This will not only endanger innocent children; it will be a total mockery of Catholic nuns and the Catholic religion. Some of the Catholics in our group of protesters are threatening a lawsuit.
Who Is Funding the Presentations?
Much funding comes from taxpayer dollars. Some of the story hours have been held on military bases, supported by our taxes. Some funds come from public libraries themselves (as in the case of our Sonoma County libraries), who invite the presenters in the spirit of “diversity, equity, and inclusion.”
The funds buy books; some DSH events give books away for free. Of course, all the books are promoting their agenda.
The funds also pay the “queens” and “kings” for their performances and for the training they receive to ensure they can “talk effectively to children and parents about gender identity and drag,” according to Wikipedia.
Funding also comes from big foundations and corporations. Much money comes from wealthy billionaires like George Soros and his Open Society Foundation and from the Warren Buffett Foundation.
Both of these men believe the world is overpopulated and the population must be drastically reduced. What better way than to make sure young people cannot reproduce? They know that transgender children who have had body parts cut off will never be able to have children of their own.
The Federalist reported in 2018 that another big billionaire family that is giving much money to drag story hours and other transgender causes is the Pritzker family. This family created the Hyatt Hotel chain with its leader Jennifer Pritzker, who identifies as transgender. Mr. Pritzker used to be named James and even served in the military. Now as a transgender woman, he is very supportive of transgender causes.
But could it be more because of financial interests than ideological ones? Some of the organizations Mr. Pritzker owns and funds are especially noteworthy, for they are all promoting the rapid induction of transgender ideology into medical, legal, and educational institutions.
Mr. Pritzker owns Squadron Capital, an acquisitions corporation with a focus on medical technology, medical devices, and orthopedic implants; and the Tawani Foundation, a philanthropic organization with grants that focus on gender and human sexuality.
Other wealthy people who have invested a lot of money in the transgender movement are Martine Rothblatt (a male who identifies as transgender and transhumanist), Tim Gill (a gay man), Drummond Pike, Jon Stryker (a gay man), Mark Bonham (a gay man), and Ric Weiland (a deceased gay man whose philanthropy is still LGBT-oriented). Most of these billionaires fund the transgender lobby and organizations through their own organizations, including corporations.
According to the Federalist, many other wealthy donors use other foundations to hide their names—such as the Tides Foundation.
Then there is Big Pharma. Who stands to make the most money if children fall for all the indoctrination that they hear and decide they, too, were born in the wrong body and end up transitioning themselves?
According to PJ Media, Big Pharma companies are also pouring money into the transgender movement because they know they will get that money back with all the puberty blockers and hormones that the transitioning persons will need for the rest of their lives to keep them in their transgendered state.
The transgender business is very lucrative, bringing in lots of money for the hospitals and doctors performing the surgeries, plus the cost of expensive hormones and the cost of counseling.
According to the Daily Wire, it is expected that the money earned will be $5 billion at the end of 2023 and maybe $11 billion in future years.
Concerned Parents
We who protested the story hours are a group of concerned parents and grandparents. Some of us even have children who have suddenly—seemingly out of the blue—decided they identify strongly with the opposite sex and are at various stages in their transitioning.
This is a new phenomenon that has only recently been identified. Researchers are calling it “rapid-onset gender dysphoria” (ROGD), and it is becoming an epidemic among our most vulnerable youth.
We are horrified at the growing number of young people whose bodies have been disfigured and whose physical and mental health have been destroyed by transitioning, only to discover—too late—that it did little to relieve their dysphoria.
Contrary to popular opinion, data shows that the highest rate of thoughts of suicide is among transgender youth (82 percent) who realize there is no going back—they cannot regrow those body parts that were removed. They will never be able to have children of their own.
Our children are young, naïve, and impressionable. Many of them are experiencing emotional or social difficulties. They are strongly influenced by their peers and by the media, and these sources promote the transgender lifestyle as popular, desirable, and the solution to all of their problems.
And they are being misled by authority figures such as teachers, doctors, counselors, and librarians who rush to “affirm” their chosen gender without ever questioning why.
We concerned parents do not hold any hate for the LGBT community. We just love our children and do not want them indoctrinated into making decisions at an early age that can harm them for the rest of their lives.
Tyler Durden
Sat, 07/08/2023 – 18:50 - White House Spox Defends Admissions Discrimination As 'Important Constitutional Right'
White House Spox Defends Admissions Discrimination As ‘Important Constitutional Right’
White House Press Secretary Karine Jean-Pierre appeared on MSNBC last week, where she took a clear stance against the recent Supreme Court decision in favor of Asian Americans who sued Harvard over racial discrimination in their affirmative action-based admissions system.
Speaking with host Ari Melber, the self-described ‘historic figure‘ said the conservative-majority court had made “unprecedented” rulings regarding abortion, and that last week’s ruling on affirmative action was again “taking away important constitutional rights that have been in place for a long time.“
“Let’s not forget this… the president was, when he was a Senator, he was the chair of Judiciary Committee. He is an expert on this. He understands how this works a lot of these uh you know a lot of these unprecedented decisions that this SCOTUS has made, they have been held up in the past by Republicans, by democrats, right? And so there’s so much changes that have happened in the past year and it is it is you know unheard of it is really wrong what we’ve seen…”
Melber then asked her about preferential treatment for legacy admissions, to which KJP bizarrely pivoted to nominating ‘diverse’ judges.
“As I mentioned, the president takes this very seriously he’s an expert at this when it comes to judges and getting judges through… as we’re nominating judges and getting them through … we’ve done about 136 federal judges who are diverse and represent this country and that is also important so we’re going to keep that afoot make sure that we continue to focus on that.”
Watch and enjoy the word salad:
Yes Karine, it’s an ‘important constitutional right’ to keep the top performing students – who gave up a social life in High School for straight A’s so they could attend America’s (formerly) most prestigious institutions – from achieving their dreams.
How insane did Harvard’s affirmative action policies get?
An African American student in the 40th percentile of their academic index is more likely to get it than an Asian student in the 100th percentile.
Black students in the 50th percentile are more likely to get in that… pic.twitter.com/9vvBuQXA24
— Greg Price (@greg_price11) June 29, 2023
Tyler Durden
Sat, 07/08/2023 – 18:15 - BIS: CBDC Roll-Outs May Require Changing The Constitution
BIS: CBDC Roll-Outs May Require Changing The Constitution
Authored by Mark Jeftovic via BombThrower.com,
The IMF is warning that with all these CBDCs about to launch, there need to be global inter-operability standards between them all, and they’re working on a global platform to facilitate just that.
Speaking at a conference of African central banks in Rabat, Morocco, IMF Managing Director Kristalina Georgieva said that there needs to be agreement among CBDC implementations,
“on a common regulatory framework for digital currencies that will allow global interoperability. Failure to agree on a common platform would create a vacuum that would likely be filled by cryptocurrencies”
Not to be outdone, the Bank of International Settlements (BIS) worked with seven central banks to publish YARP (Yet Another Research Paper) on CBDC policy, entitled “Central Bank Digital Currencies: ongoing policy perspectives”… (*yawn*).
The central banks involved were: Japan, Sweden, Switzerland, England, the United States, Canada, and the European Union.
The paper is mostly a snoozer:
“Development of CBDC work requires careful consideration and engagement with a wide range of stakeholders, including the private sector and legislators”…
“To successfully meet its public policy objectives, a CBDC ecosystem should allow a wide range of private and public stakeholders to participate and, in doing so, deliver services which benefit end users.”…
“The complex design questions and the potential risks arising from the implementation of any CBDC require careful consideration.”
Until you get to the rather innocuous sounding Annexes, like “Box 2: Legal Considerations”.
This is where it starts to get interesting.
What are retail CBDCs, exactly?
The paper wonders: Are they cash? Deposits? Or something else entirely?
This is quite the question, because if CBDCs aren’t cash, there has to be a reason why they wouldn’t be. When you start to see where CBDCs are going: expiry dates, programability, social credit scores – what we’re talking about is almost a kind of anti-cash (my observation, not the paper’s).
Further, the paper wonders, would there need to be changes to banking charters, legislation or even the constitutions of the countries issuing them:
“Legislation may need to be enacted or adjusted to specifically authorise the issuance and distribution of a retail CBDC (eg changes to central bank charters/statutes, legislation in other areas related to payments or to the constitution itself)”
Who had “new Constitutional convention” on their bingo card for the roll-out of CBDCs? We do now.
Box 3: What tools may be needed to manage stressed conditions?
Here we truly get a peak behind the curtain – and it’s all dressed up in that Davos-dialect of benign-sounding euphemisms that belie a Brave New World (like how “recontextualizing food chains” basically means banning the peasants from eating meat).
They get right to it:
“When considering potential tools and policies to manage stressed conditions (eg limiting or managing fund outflows from bank deposits), there are price and quantity control approaches, with a mix of the two also being possible”
Those would be your bank deposits. In this section they’re gaming out how to contain bank runs.
“Quantity holding limits have the advantage of directly limiting the extent of potentially harmful levels of disintermediation (eg structural changes resulting from CBDC adoption that increase the cost or availability of credit across the economy), and being relatively simple to implement.
However, they also have disadvantages, such as potentially impacting adoption; this may happen if holding limits increase the risk of failed transactions occurring, or make CBDC transactions less convenient, especially if alternative forms of digital money (eg stablecoins) do not present similar limits.”
Translation: We can cap how much money SerfCoin you’re permitted to hold, so we don’t blow up the system with too much SerfCoin issuance, but if we do that, you may not want to hold SerfCoin, opting for stablecoins (and cryptos) instead – where no such limits would apply.
Implementing limits may also have knock-on effects on the potential functionality of CBDC.
Technical solutions such as “waterfall” or “cascade” functionality, whereby CBDC holdings or payments that would breach a limit would automatically be transferred into other deposits, could be considered to ease the effects of being close to any holding limit/threshold.
Translation: We can build in safety valves that would automatically move your money SerfCoin into other accounts, and even make such transfers obligatory. But that could get tricky, because that might technically be, well… theft.
When I read what comes next:
Price-based measures like fees and tiered remuneration have the advantage of being more flexible by allowing for any size of transaction or holdings, albeit at increasing costs.
In principle, the decision about the amount of CBDC transferred or held above a certain level is influenced via incentives but still relies primarily on each user’s preference. However, price-based measures may permit larger inflows into CBDC in stress situations compared with holding limits as the fee or scale of negative remuneration required to dissuade runs may be very large.
Those are again quite benign-sounding terms, however if you look into it, it becomes apparent that terms like “tiered remuneration” have very specific meanings within the body of academic thought around CBDCs.
Tiered Remuneration: eliminating cash, privacy and the ability to save
The ECB’s Ulrich Bindseil discusses this at length in a 2019 paper “Controlling CBDC through tiered remuneration” (in fact my money is on Bindseil being the main author of this BIS paper; only the central banks involved are cited on the cover page).
In his paper, the tools of “two-tier remuneration” are examined to mitigate “risk of facilitating systemic runs on banks in crisis situations”.
The paper acknowledges the CBDC role in the elimination of cash (banknotes) and that they effectively end anonymity in transactions and prevent both “illicit transactions” and “store of value”, because CBDCs – through tiered remuneration – “Allows overcoming the ZLB as one may impose negative interest rates on CBDC”.
To wit,
if digital cash is used to completely replace physical cash, this could allow interest rates to be pushed below the zero-lower bound…By allowing overcoming the zero-lower bound (“ZLB”) and therefore freeing negative interest rate policies (“NIRP”) of its current constraints, a world with only digital central bank money would allow for – according to this view – strong monetary stimulus in a sharp recession and/or financial crisis.
This could not only avoid recession, unemployment, and/or deflation but also the need to take recourse to nonstandard monetary policy measures which have more negative side effects than NIRP.
However,
Opponents of NIRP will obviously dislike this argument in favor of CBDC, and will thus see CBDC potentially as an instrument to overcome previous limitations of “financial repression” and “expropriation” of the saver.”
Wow.
Later in the paper we get to what tiered remuneration means: the more SerfCoin you have, the lower your interest rate, even going negative beyond a certain point. It’s like a built-in wealth cap and tax at the same time, where the only way to avoid it, presumably, would be to spend it – thus shoring up money velocity.
It overlooks the obvious: that those with any meaningful amount of wealth would have the incentive to avoid storing any of it in a CBDC at all.
The BIS paper dropped around the same time a copy of the EU’s “Digital Euro Bill” was leaked and details published by Coindesk; notable in that is the provision that any digital Euro must function in an offline mode, protect privacy (i.e. be like cash) and must not be programmable.
It will be interesting to see which vision of CBDCs prevails (although the proponents of the BIS model could profess that tiered remuneration is more structural than programmable, but automatic and obligatory swaps of deposits to other accounts seems harder to rationalize)
That said, Christine Lagarde also clarified in April that “programability” will be done at the retail banking level:
“For us [central banks], the issuance of a digital currency that would be central bank money would not be programmable […] Those who can associate the use of digital currency with programmability would be the intermediaries — would be the commercial banks”
…which gives us a hint at something else we’ve been pondering in our monthly coverage of CBDCs in The Bitcoin Capitalist (“Eye On EvilCoin” section): how will the big banks avoid being disintermediated out of existence when central banks create CBDC accounts directly to the consumer?
Maybe they’ll be the ones enforcing the expiry dates, negative interest rates, social credit scores and personal carbon footprint quotas and that will become the raison d’être of the Too Big To Fail Banks.
* * *
Today’s post is an excerpt from the my premium newsletter The Bitcoin Capitalist. Try it for a month here.
My next e-book The CBDC Survival Guide should be out this summer sign up for The Bombthrower list and get it free when it drops, and receive The Crypto Capitalist Manifesto in the meantime. You can also connect with me on Nostr or Twitter.
Tyler Durden
Sat, 07/08/2023 – 17:40 - Giant Dust Cloud In South US; Another Round Of Canadian Wildfire Smoke In Northeast
Giant Dust Cloud In South US; Another Round Of Canadian Wildfire Smoke In Northeast
AccuWeather meteorologists say massive dust clouds from Africa’s Sahara Desert will traverse the Caribbean and the southeastern US this weekend.
“Saharan dust is common most years across parts of the Atlantic basin and sometimes spreads as far west as the Caribbean and Florida,” said AccuWeather Director of Forecast Operations Dan DePodwin.
NOAA’s weather satellites have spotted two dust plumes. The first is over the eastern Caribbean Sea and the southern Gulf of Mexico. There’s an even larger one behind it.
7/7: A plume of Saharan Dust will arrive across our region late this weekend into the upcoming work-week. Strong upper-level winds carry these small sand particles originally from the Saharan Desert far across the Atlantic ocean. More info on how this affects air quality below! pic.twitter.com/jCY0WSfMWZ
— NWS Miami (@NWSMiami) July 7, 2023
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AccuWeather meteorologists forecast coastal areas of Texas, Louisiana, Mississippi, and Alabama will be impacted by the dust and worsen air quality.
Saharan dust makes its way into the Lower 48 over the next few days.
In addition to suppressing tropical activity over the Atlantic, dust may impact air quality, slightly lower temperatures, and allow for brilliantly colored sunrises/sunsets.https://t.co/JQwv4VoIiL
MG pic.twitter.com/EnEUxXh8vC— Weather.us – Weather Forecasts For Professionals (@WeatherdotUS) July 8, 2023
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Simultaneously, forecast models from The Weather Channel show the possibility that the third round of Canadian wildfire smoke will blanket parts of the Northeast.
Dust clouds in the southern US, while smoke invades the northern US. Prepare for a continuation of corporate media pushing climate apocalypse headlines, some of which have been labeled as ‘nonsense’ even by a Wall Street Journal editorial titled, “Hottest Days Ever? Don’t Believe It.”
Tyler Durden
Sat, 07/08/2023 – 17:05 - Xi Tells China Military To Deepen War, Combat Planning Amid Tensions With US, Taiwan
Xi Tells China Military To Deepen War, Combat Planning Amid Tensions With US, Taiwan
By Alex Wu of The Epoch Times
Chinese Communist Party leader Xi Jinping urged the regime’s military to deepen war and combat planning, as Sino-U.S. relations continue to sour and the tension in the Taiwan Strait intensifies.
Xi inspected the Eastern Theater Command on July 6 and met with representatives of officers and soldiers when he made the comments, according to state media Xinhua. Xi claimed that the world has entered a new period of turmoil and change and China’s security situation has become more unstable and uncertain. He required the military to “deepen war and combat planning to increase the chances of victory in actual combat.”
Soldiers stand on deck of the ambitious transport dock Yimen Shan of the Chinese People’s Liberation Army (PLA) Navy as it participates in a naval parade to commemorate the 70th anniversary of the founding of China’s PLA Navy in the sea near Qingdao The Eastern Theater Command was established in February 2016 after the CCP’s military reform. It mainly governs the armed forces in East China (Jiangsu, Shanghai, Zhejiang, Fujian, Jiangxi, and Anhui provinces). Headquartered in Nanjing of Jiangsu Province, it’s responsible for the security of eastern China, including the East China Sea, the Taiwan Strait, and the Pacific Ocean. In the past 7 years, the Eastern Theater has performed many military exercises and cruises targeting Taiwan.
Aiming at Taiwan
Chang Yanting, former deputy commander of Taiwan’s Air Force and visiting professor at Tsinghua University in Taiwan, told The Epoch Times on July 7 that Mr. Xi’s emphasis on military readiness and preparation for war is closely related to the current international environment. “It’s including the military tensions between the United States and mainland China, as well as economic wars, financial wars, trade wars, technology wars, and so on. The CCP is now emphasizing ‘deepening war and combat planning,’ which is envisioning the United States as its opponent, intending to deter the United States from intervention in the Taiwan Strait.”
A missile from the rocket force of the Eastern Theater Command of the Chinese People’s Liberation Army (PLA) takes part in operations during the combat readiness patrol and military exercises around Taiwan Mr. Chang said, “He [Xi Jinping] wants to strengthen preparations for war, and the Taiwanese cannot take it lightly. Especially the United States believes that from 2025 to 2027 is the most dangerous time for Taiwan. I don’t think we should take it lightly, and we must strengthen our military preparations.”
However, Mr. Chang pointed out that if the CCP wages a war over Taiwan, it will face a very complicated international situation.
“Once war breaks out, the CCP is not just facing Taiwan. Warships from Japan, South Korea, the Philippines, Australia, the United States, and even Europe, including France and Germany will all come to join the fight. Will they fire at these warships or not? They are in the Taiwan Strait over there. Once the CCP hit any of them, according to the North Atlantic Treaty, if one country is attacked, it will be regarded as all countries are attacked. As long as the United States has a warship attacked in the Taiwan Strait, the other 30 countries will support the United States,” Mr. Chang said.
Stabilize Morale
Military commentator Yang Wei told The Epoch Times on July 6 that Mr. Xi’s sudden visit to the Eastern Theater Command could not be ruled out to demonstrate his control of the CCP military. “After the Wagner mutiny in Russia, the leaders of the CCP seemed to be frightened. They may intend to show that [their] military power is stable and show the outside world that there will be no mutiny or coup,” Mr. Yang said.
Former Lieutenant Colonel Yao Cheng of the Chinese Navy Command told The Epoch Times on July 6 that both the Southern Theater Command and the Eastern Theater Command are responsible for the fight in the Taiwan Strait. “But the CCP’s military is not monolithic. Because Xi is now cleansing the military, the morale of the military is not stable, and he wants to win the hearts of them.”
Mr. Xi told the military officers in the Eastern Theater Command during his tour that they should “adhere to the direction and enhance the awareness of urgency,” “dare to fight and be good at fighting,” etc.
Mr. Yao said that the sense of urgency is Mr. Xi’s own sense of urgency, not the military’s. “The military and Xi Jinping are not of one mind in fighting wars. They are unwilling to fight battles that cannot be won,” he said.
Continue reading at the Epoch Times.
Tyler Durden
Sat, 07/08/2023 – 16:30 - WSJ Blames Abysmal Recruitment Numbers On Military Veterans
WSJ Blames Abysmal Recruitment Numbers On Military Veterans
Authored by Jack Hellner via AmericanThinker.com,
The Wall Street Journal published a piece heaping the blame for the military recruitment crisis on those who have served – yes, you read that right, military veterans are the problem.
Not the drag queens, not the anti-white rhetoric and policies of Lloyd Austin, not coerced participation in experimental drug trials, but those who enlisted and served.
It is appalling that our media blames low recruitment numbers on people who sacrificed and risked their lives for their country. The headline and teaser read as follows:
The Military Recruiting Crisis: Even Veterans Don’t Want Their Families to Join
Pentagon scrambles to retain the main pipeline for new service members as disillusioned families steer young people away[.]
Maybe reporter Ben Kesling should have questioned whether current government policies might be causing the problem instead of just repeating the government talking points.
Maybe the veterans look at the disaster at the Kabul airport in August of 2021, and they don’t want their children to report to so many incompetents.
Maybe they’re disillusioned because they gave limbs or lost friends in the deserts and mountains of Afghanistan, only to watch Joe Biden leave people and equipment behind for the benefit of the very forces against which Americans fought.
Maybe they find a commander-in-chief who fails to accept responsibility and acknowledge he is to blame for leaving so many behind, unworthy of serving.
Maybe they don’t trust a “leader” who pretends to care about the Americans who died, but can’t help from checking the time as their remains are brought home and bragging about how successful the exit was.
Maybe the veterans don’t want their children to sacrifice for a regime that seems to work so hard to appease and enrich Iran as the nation still pledges death to America and her people.
Maybe the veterans would like the military to focus on defending the country instead of focusing time and effort on DIE, pronouns, and Pride.
Maybe the veterans were unhappy that the government was using taxpayer money for drag shows, and only stopped when Republicans raised a stink.
Why have news reports on current conditions in Afghanistan essentially stopped? Could it be that the media doesn’t want to remind the voters how bad it is?
Why isn’t the military able to fill the gap in recruitment with young cross-dressing wokesters, since those are the people to whom it is catering, instead of blaming veterans?
Maybe the veterans are angry that so many healthy young people were betrayed and expelled from the military for exercising their free will and inalienable rights to abstain from being a lab rat.
Maybe some veterans are angry that the military is violating federal law by using taxpayer money to pay for abortions.
Maybe the veterans are aggravated that the military, along with the entire government, is more focused on pretending they can control the climate, than in defending ourselves against real-world foes like China, Iran, Russia, and North Korea — nations that are hyper-focused on building their military power. My guess is that veterans, many who have seen combat, are more worried about unchecked evil than fabricated doomsday predictions.
Did you see Lockheed Martin’s Pride parade banner? What else can one infer except a concerted agenda by the powers that be to promote war as fun, silly, and colorful. How eco-friendly and sustainable it would be if we were to use battery-operated ships, planes, and tanks! Can we call a truce every time we have to recharge the batteries? (Afterall, our enemies are sticking with gas-powered transportation.)
It would be like America is taking a peashooter to a machine gun fight. What could go wrong?
Maybe the veterans want a commander-in-chief who doesn’t appoint so many people who can’t tell the difference between men and women.
Think of all the money we could save if we just housed everyone together and labeled all facilities for they/them since they can’t seem to tell the difference! What could go wrong?
We should also get rid of all academic and physical standards because they clearly discriminate. Our fighting force would be so much better if we didn’t have standards…wouldn’t it? Our adversaries will destroy and subjugate us, but at least we will have much higher DIE and ESG scores.
I bet China, Iran, Russian, and North Korean leaders can tell the difference between men and women, and don’t worry about “misgendering.”
Maybe it worries veterans that the military leader only acknowledges six of his seven grandchildren. If he doesn’t care for the littlest members of his own family, how much less those in whom he has no familial bond?
Joe Biden and the entire left love to blame others for their failures:
Biden and Kamala Harris blame the massive influx of illegals on President Trump instead of the fact that they refuse to enforce immigration laws and secure the border.
Biden and his cabinet of Party “economists” blame the massive inflation increase on COVID and Russia, instead of Democrat policies like the destruction of reasonably priced energy and massive spending programs (especially the supposed green energy ones).
And, Biden blamed the smackdown of his illegal attempt to buy votes with a student loan giveaway on MAGA Republicans, and a rogue Supreme Court, instead of that pesky Constitution and its stupid separation of powers requirement. Those darn founding fathers!
Now, media allies like Keslng blame the great shortfall of military recruitment on those who gave great sacrifice to our country — that is the thanks they get from leftists.
Here’s a novel concept for the media: Report the news and facts instead of regurgitating talking points…maybe your poll numbers will go up.
Tyler Durden
Sat, 07/08/2023 – 15:30 - Even NOAA "Runs Away" From 'Hottest Day Ever' Claim After Media Hysteria
Even NOAA “Runs Away” From ‘Hottest Day Ever’ Claim After Media Hysteria
Last week the global warming industry and its corporate media cheerleaders made a concerted effort to declare July 3-4 the hottest days on Earth ever. Media outlets like ABC, The New York Times, Axios, and Bloomberg each cited the University of Maine’s Climate Reanalyzer computer model, which has since been questioned.
The National Oceanic and Atmospheric Administration (NOAA) told AP News, “Although NOAA cannot validate the methodology or conclusion of the University of Maine analysis, we recognize that we are in a warm period due to climate change.”
In response to NOAA throwing cold water on the model’s unverifiable findings, environmental attorney Steve Milloy tweeted:
“NOAA runs away from ‘hottest day’ claim.”
NOAA runs away from ‘hottest day’ claim.https://t.co/BQv0VpuE5r pic.twitter.com/IaeOIGj5xE
— Steve Milloy (@JunkScience) July 7, 2023
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On Friday evening, The Wall Street Journal published an op-ed by Milloy titled “Hottest Days Ever? Don’t Believe It.”
“One obvious problem with the updated narrative is that there are no satellite data from 125,000 years ago. Calculated estimates of current temperatures can’t be fairly compared with guesses of global temperature from thousands of years ago,” Milloy wrote.
Despite concerns about the model’s reliability, Axios’ Thursday headline read, “Earth sees three hottest days on record,” while Bloomberg ran with “The World Recorded Its Hottest Days Ever This Week.”
Heads of the global warming industry have spent the last three decades frantically running around the globe in private jets, prophesying how the world would imminently end because of emissions from fossil fuel engines.
Al Gore
Michael Bloomberg
In 2018, remember, climate alarmist child Greta Thunburg tweeted some ‘scientist’ who claimed “all of humanity” would be “wiped out” unless “we stop using fossil fuels over the next five years.”
We’re still typing and using fossil fuels — the world has not ended. Last week, we noted, “New Month, Another Movement: Corporate Media Refocuses Energy On Climate Doom.”
Full disclosure, we don’t discount climate change because the climate has been constantly changing for 4.54 billion years.
Last week was a media blitz campaign by the global warming industry to push ‘misinformation’ with a model that even NOAA has warned is not dependable.
Tyler Durden
Sat, 07/08/2023 – 15:00 - Crunching The Numbers: Justice Jackson's Dissent On Affirmative Action Doesn't Add Up
Crunching The Numbers: Justice Jackson’s Dissent On Affirmative Action Doesn’t Add Up
The last week’s historic decisions from the Supreme Court led to an array of factual objections from critics.
In Justice Neil Gorsuch’s major free speech ruling in 303 Creative LLC v. Elenis, a man who believes that he is “Stewart” referenced in the case (as asking for a website for a same sex marriage) never made such a contact with the company. In Justice Sotomayor’s dissent to that case, the justice falsely claims that the Pulse mass shooting (“the second-deadliest mass shooting in U.S. history”) was an intended anti-LGBT attack. (The shooter apparently was unaware of what type of nightclub it was).
Those mistakes, however, had little impact on the reasoning.
That is not the case with a mathematical challenge raised to the dissent of Justice Ketanji Brown Jackson in the North Carolina affirmative action case.
In a Wall Street Journal column, lawyer Ted Frank objects to what he argues is a “mathematically absurd claim” about black newborns in Jackson’s dissent. Jackson was arguing that affirmative action has been shown to “save lives” by allowing black doctors to give better care for black people than white doctors.
“It saves lives. For marginalized communities in North Carolina, it is critically important that UNC and other area institutions produce highly educated professionals of color. Research shows that Black physicians are more likely to accurately assess Black patients’ pain tolerance and treat them accordingly (including, for example, prescribing them appropriate amounts of pain medication). For high-risk Black newborns, having a Black physician more than doubles the likelihood that the baby will live, and not die.”
Frank objected:
“A moment’s thought should be enough to realize that this claim is wildly implausible. Imagine if 40% of black newborns died—thousands of dead infants every week. But even so, that’s a 60% survival rate, which is mathematically impossible to double. And the actual survival rate is over 99%.”
The claim is based on a 2020 study cited in a footnote, which Justice Jackson appears to have taken from an amicus brief by the Association of American Medical Colleges. However, Frank again objects that the study is not only “flawed” but does not make that claim:
“The study makes no such claims. It examines mortality rates in Florida newborns between 1992 and 2015 and shows a 0.13% to 0.2% improvement in survival rates for black newborns with black pediatricians (though no statistically significant improvement for black obstetricians).”
Frank says that “the AAMC brief either misunderstood the paper or invented the statistic.” He also notes that the study is flawed by relying on a linear regression given the small differential of 10 newborns a year. Instead, he claims that study did the accepted logistic model analysis in such cases but put the results in an appendix:
“There, the most highly specified model still shows an improvement in black newborn survival. But if you know how to read the numbers—the authors don’t say it—it also shows black doctors with a statistically significant higher mortality rate for white newborns, and a higher mortality rate overall, all else being equal.”
I cannot claim any particular skill at “reading the numbers.” However, this controversy captured my attention because I have always been leery of so-called “Brandeis briefs” before the Supreme Court where amici dump studies into the record.
Before joining the court, Justice Louis Brandeis filed such a brief in his brilliant challenge to work place conditions. It is now a common feature in briefing of cases as groups and associations push studies as determinative or substantial evidence on one side or another. My opposition to the brief is that the justices are in a poor position to judge the veracity or accuracy of such studies. They simply pick and choose between rivaling studies to claim a definitive factual foundation for an opinion.
It is also frustrating that, as a litigator, you fight over every entry into the record at trial. However, when you are before the Supreme Court, everyone is free to just dump statistics and studies into the record and the Court regularly uses such material to determine the outcome. It produces more of a legislative environment for the court as different parties insert data to support their own view of what is a better policy or more serious social problem. There is only a limited ability of parties to challenge such data given limits on time and space in briefing.
The result is that major decisions or dissents can be built on highly contested factual assertions. In this case, critics believe that the Jackson argument literally does not add up.
Tyler Durden
Sat, 07/08/2023 – 14:30 - Indian Tribe Demands America-Hating Ice Cream Commies Ben & Jerry's Return 'Stolen' Land HQ Built On
Indian Tribe Demands America-Hating Ice Cream Commies Ben & Jerry’s Return ‘Stolen’ Land HQ Built On
Members of a Vermont Indian tribe are demanding that the owner of Ben & Jerry’s give back ‘stolen’ land that the company’s headquarters is built on, after the ice cream company tweeted an America-hating reminder on the Fourth of July holiday that it was “high time we recognize that the U.S. exists on stolen Indigenous land and commit to returning it.”
This 4th of July, it’s high time we recognize that the US exists on stolen Indigenous land and commit to returning it. Learn more and take action now: https://t.co/45smaBmORH pic.twitter.com/a6qp7LXUAE
— Ben & Jerry’s (@benandjerrys) July 4, 2023
The ice cream maker further details their call to action on their website – saying that America needs to start by returning Mount Rushmore. “The faces on Mount Rushmore are the faces of men who actively worked to destroy Indigenous cultures and ways of life, to deny Indigenous people their basic rights,” the post alleged.
https://platform.twitter.com/widgets.jsDon Stevens, Chief of the Nulhegan Band of The Coosuk Abenaki Nation, told Newsweek that his tribe is “always interested in reclaiming the stewardship of our lands,” but that the ice cream company – owned by Unilever, has yet to contact them to return the land its headquarters now occupies.
Chief of the Nulhegan Band of The Coosuk Abenaki Nation, Don Stevens “If and when we are approached, many conversations and discussions will need to take place to determine the best path forward for all involved,” said Stevens, who is a descendant of the Abenaki Nation, a confederacy of several tribes which at one time controlled an area of America that spans from northern Massachusetts to Bew Brunswick, Canada – meaning the Ben & Jerry’s Burlington, VT headquarters is now sitting on the very land the company is trying to wokeshame the country into giving back.
“If you look at the [Abenaki] traditional way of being, we are place-based people. Before recognized tribes in the state, we were the ones who were in this place,” Stevens said, claiming that the Abenaki see themselves as “stewards of the land.”
The company’s 4th of July message has sparked a nationwide boycott of the America-hating communist ice cream slingers.
@Ben&Jerry’s
It’s time to boycott Ben and Jerry’s until they give back the land that belongs to the native Americans. This is ancestral barrial grounds. Ben and Jerry’s build over the Graves of the elders of the tribe. If you want to give Reparations, give it to the Indians.#KAG pic.twitter.com/PXIzUyk0CJ— Stephen.j.Olko (@j_olko1) July 6, 2023
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Boycott Ben and Jerry’s until they return the land!!!
— steve (@scanx55) July 7, 2023
BEN & JERRYS SHOULD GIVE ALL THEIR ICE CREAM FACTORIES BACK TO THE NATIVE INDIANS. IF THEY DON’T THEN THEY ARE HYPOCRITES. pic.twitter.com/6M4jsDJ9ci
— ALPHA BIG DOG (@ALPHABIGDOG2) July 5, 2023
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Meanwhile, the pain gets worse for Ben and Jerry’s owners, as the Epoch Times reports, Unilever stock has lost around $2 billion in market capitalization amid calls to boycott the company.
Shares of parent Unilever, the Anglo-Dutch multinational company, dropped about 0.5 percent on Friday, 0.8 percent on Thursday, and 0.5 the previous day. It’s not clear if the drop was due to the calls to boycott Ben & Jerry’s, which has been owned by Unilever since 2000.
“Make @benndjerrys Bud Light again,” country singer-songwriter John Rich wrote in response, responding to the several-week-long boycott targeting Bud Light that has seen the beer company’s year-over-year sales plummet. While Bud Light didn’t attack the founding of the United States, the company was panned for producing a can of beer with transgender influencer Dylan Mulvaney’s face on it.
“Long overdue for the Bud Light treatment. You hate the country, fine. We won’t buy your product. All good,” another wrote in response. “When is Ben & Jerry’s giving up their land?” Jenna Ellis, a former attorney to President Donald Trump, wrote on Twitter.
Several newspapers like the New York Post and Washington Examiner, too, called for a consumer-led boycott after the Twitter post.
“The brand backed bad-joke Occupy Wall Street, for crying out loud; it aligns with the anti-Israel BDS movement. Co-founder Ben Cohen funds groups opposed to US military aid to Ukraine,” the NY Post’s editorial wrote before calling for a boycott of the ice cream company. “Remember, America, you don’t have to accept woke preening from corporate elites. Speak up—with your wallets,” it said.
The Examiner said, “It may be fun to imagine, but, of course, Ben & Jerry’s will never actually give back the land its corporate office sits on. It will simply exert pressure on others to give up their land.”
It’s now Americans’ “job to try and turn the tide” against the company, the paper said.
The company, however, is no stranger to controversy and boycott calls. Over the years, the founders of Ben & Jerry’s have taken left-wing or anti-U.S. stances, and have also often been critical of American foreign policy efforts, including Washington’s decision to provide military aid to Ukraine in the war against Russia.
Years ago, some called for a Ben & Jerry’s boycott after it refused to sell its ice cream in Israel’s West Bank and Gaza Strip, alleging those areas are being occupied by Israel.
In June, Ben & Jerry’s announced it wouldn’t pay to advertise on Twitter and claimed that “hate speech” is on the rise across the platform since Elon Musk purchased the company last year. In a blog post weeks ago, the company wrote that changes at Twitter are causing it “great concern” and that “hate speech is up dramatically while content moderation has become all but non-existent.”
Tyler Durden
Sat, 07/08/2023 – 14:00 - All Dreams End: The Collapse Of Keynesian Economics
All Dreams End: The Collapse Of Keynesian Economics
Authored by Charles Hugh Smith via OfTwoMinds blog,
Now that debt is rising faster than “growth,” and “growth” is dependent on speculative credit-asset bubbles, the collapse of the Keynesian dream looms large.
Unbeknownst to economists, the Keynesian bedrock of modern economics–using financial repression and government spending funded by debt to manage the business cycle of growth and recession–is an artifact of a century of expansive cheap energy and virtuous demographics.
Presented as quasi-scientific “laws of economics,” Keynesian policies of suppressing interest rates and funding stimulus with debt were only possible in an era in which energy per capita (per person) always became more abundant and affordable in terms of the purchasing power of wages, i.e. how many hours of labor does it take to buy the energy to fuel a vehicle, prepare a meal, etc.
The demographics of the 100 years of Keynesian supremacy were also uniquely favorable. The workforce paying taxes and funding pay-as-you-go social benefits to retirees (Social Security and Medicare) and the less fortunate (welfare, Medicaid) expanded smartly decade after decade, expanding government revenues and spending as the natural result of an expanding workforce.
A third uniquely favorable condition was the vast pool of natural capital that had not yet been financialized, i.e. turned into a commodity that could be used as collateral for new debt and leverage. Tapping this untapped pool of capital enabled the vast expansion of debt, public and private. (See charts below)
A fourth uniquely favorable condition was globalization, a benign-sounding term for the brazen exploitation of the planet’s remaining reserves of resources and cheap labor. Profits swelled as these last pockets of easy-to-exploit sources of wealth were tapped.
These four conditions have all topped out and are now reversing. The cheap-to-access energy has been consumed, the workforce has shifted from expansion to stagnation while the populace of retirees explodes, globalization has run its course, having stripmined the planet and human populace, and every potential source of new collateral has been financialized / leveraged to the hilt.
Keynesian policies of pushing interest rates to near-zero to boost private debt and government deficit spending morphed from being “emergency policies” to permanent status quo. Given that greed and laziness are the human default settings, it was always unrealistic to think that the “emergency tools” of borrow-and-spend would be reserved for recessions / depressions. Now consumption, private and public, depends entirely on the permanent expansion of debt to fund not only consumption but the rising costs of servicing the ballooning debt.
The Keynesian fantasy always rested on one dynamic: we can expand production and consumption faster than we’re expanding debt and the cost of servicing that debt. With the four virtuous conditions now reversing, the cost of debt is rising far faster than the tepid increases in production and consumption generated by debt-funded spending.
The final desperate trick of the Keynesian fantasy is the wealth effect generated by speculative credit-asset bubbles, in which assets that were once grounded in utility and costs escape gravity and soar into the stratosphere, generating trillions of dollars in “free money” for those fortunate to have bought the assets before the bubble inflated.
The consumption afforded by this bubble-generated “free money” was the last source of Keynesian “growth”: just suppress interest rates to juice private borrowing, flood the financial system with liquidity, and voila, trillions in unearned “free money” flows to those who were already rich enough to own the assets catapulted to the moon.
But all dreams end, even the Keynesian one. The risks and costs of rising debt cannot be dreamed away, and the inevitable result is the cost of capital rises along with the risks and costs of soaring debt. Bubbles inflated by policies encouraging speculative leverage all pop, devastating those who thought the “free money” would never end.
The planet has already been stripmined of cheap-to-access resources and cheap labor. Costs are rising and playing financial games with interest rates can’t reverse real-world costs or the rising costs of capital. Demographics can’t be reversed by financial trickery, either.
The Keynesian fantasy is drawing to a close. Financialization and endless debt-funded stimulus were artifacts of four unique conditions (cheap, abundant energy, demographics, globalization and financialization) that have all topped out and are now sliding down the backside of the S-Curve. AI can put lipstick on the mirror but it is incapable of reversing the end-game decay of these four unique conditions.
Since there’s no alternative to the Keynesian dream of eternal “growth” funded by magic, we’re doing more of what’s failed until the system collapses in a heap: we’ll do more of what’s failed until it fails spectacularly.
It’s worth recalling Peter Drucker’s observation that enterprises don’t have profits, they only have costs. The same can be said of governments and entire economies. Borrowing to pay rising costs has a short-half life because debt accrues its own costs and piles up risks which have their own uniquely asymmetric dynamics.
Now that debt is rising faster than “growth,” and “growth” is dependent on speculative credit-asset bubbles, the collapse of the Keynesian dream looms large. Plan accordingly, i.e. reduce your own exposure to risk via Self-Reliance.
* * *
My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century. Read the first chapter for free (PDF)
Tyler Durden
Sat, 07/08/2023 – 13:30 - AI Is Being Over-Hyped: "Those Who Believe Artificial General Intelligence Is Imminent Are Almost Certainly Wrong"
AI Is Being Over-Hyped: “Those Who Believe Artificial General Intelligence Is Imminent Are Almost Certainly Wrong”
“The intelligence of AI systems is being overhyped and, while we could get there eventually, we are currently nowhere near achieving artificial general intelligence (AGI).”
Those are the words of Gary Marcus, Professor Emeritus of Psychology and Neural Science at New York University, as he pours cold water on the ‘AI Boom’ that has almost single-handedly supported the entire stock market for the last month.
We have seen these hype-cycles before…
Source: Bloomberg
In a conversation with Goldman Sachs’ Jenny Grimberg, Marcus explains how generative artificial intelligence (AI) tools actually work today?
At the core of all current generative AI tools is basically an autocomplete function that has been trained on a substantial portion of the internet.
These tools possess no understanding of the world, so they’ve been known to hallucinate, or make up false statements.
The tools excel at largely predictable tasks like writing code, but not at, for example, providing accurate medical information or diagnoses, which autocomplete isn’t sophisticated enough to do.
Contrary to what some may argue, the professor explains that these tools don’t reason anything like humans.
AI machines are learning, but much of what they learn is the statistics of words, and, with reinforcement learning, how to properly respond to certain prompts.
They’re not learning abstract concepts.
That’s why much of the content they produce is garbage and/or false.
Humans have an internal model of the world that allows them to understand each other and their environments.
AI systems have no such model and no curiosity about the world. They learn what words tend to follow other words in certain contexts, but human beings learn much more just in the course of interacting with each other and with the world around them.
Artificial intelligence (AI) is the science of creating intelligent machines. AI is a broad concept that encompasses several different subfields, including machine learning, natural language processing, neural networks, and deep learning.
So, is the hype around generative AI overblown?
Marcus responds like any good academic – “Yes and no.”
Generative AI tools are no doubt materially impacting our lives right now, both positively and negatively.
They’re generating some quality content, but also misinformation, which, for example, could have significant adverse consequences for the 2024 US presidential election.
But the intelligence of AI systems is being overhyped.
A few weeks ago, it was claimed that OpenAI’s GPT-4 large language model (LLM) passed the undergraduate exams in engineering and computer science at MIT, which stirred up a lot of excitement. But it turned out that the methodology was flawed, and in fact my long-time collaborator Ernie Davis pointed that out around a year ago, yet people still proceeded to use it.
We are nowhere near achieving artificial general intelligence (AGI). Those who believe AGI is imminent are almost certainly wrong.
Here’s how we got here…
Finally, Marcus explains that his biggest concern is that we’re giving an enormous amount of power and authority to the small number of companies that currently control AI systems, and in subtle ways that we may not even be aware of.
The data on which LLMs are trained can have bias effects on the model output, which is disquieting given that these systems are starting to shape our beliefs. Another concern is around the truthfulness of AI systems – as mentioned, they’ve been known to hallucinate.
Bad actors can use these systems for deliberate abuse, from spreading harmful medical misinformation to disrupting elections, which could gravely threaten society.
Be wary of the hype, Marcus concludes, AI is not yet as magical as many people think.
I wouldn’t go so far as to say that it’s too early to invest in AI; some investments in companies with smart founding teams that have a good understanding of product market fit will likely succeed. But there will be a lot of losers. So, investors need to do their homework and perform careful due diligence on any potential investment. It’s easy for a company to claim that they’re an AI company, but do they have a moat around them? Do they have a technical or data advantage that makes them likely to succeed? Those are important questions for investors to be asking.
Tyler Durden
Sat, 07/08/2023 – 13:00 - Jobs Data Highlights More Recessionary Behavior
Jobs Data Highlights More Recessionary Behavior
Authored by Simon White, Bloomberg macro strategist,
Employers continue to cut back on temporary employment, something typically seen in the run-up to recessions.
Temporary help services is one of the most leading components of the payrolls report. Employers typically let temporary staff go first in a slowdown before full-time employees.
Temp help fell again in June and has been contracting on an annual basis for several months, anticipating the slowing trend in payrolls we are currently seeing.
As the chart above shows, there is more to come, with total payrolls potentially contracting on an annual basis by the end of the year.
Firms are not only cutting temporary employees, they are reducing hours worked, also typical of what happens before firms start to fire people. The average weekly hours worked of all employees has been steadily falling.
Stocks and yields are currently roughly back to where they were prior to the jobs date release, suggesting the market continues to believe the Fed will prioritize inflation over growth.
Tyler Durden
Sat, 07/08/2023 – 12:30
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